HONG KONG: Financial firms’ race to list first SPAC in jurisdiction heats up as HKEX decision nears.

As published on scmp.com, Monday 1 November, 2021.

Financial firms are busy working with wealthy clients to be among the first to list special purpose acquisitions companies (SPACs) in the city in anticipation of Hong Kong Exchanges and Clearing (HKEX) giving its approval to blank-cheque companies, according to industry players.

HKEX chief executive Nicholas Aguzin on Wednesday said a decision on SPACs will be made soon after the 45-day consultation period ends on Sunday, hinting that the first listing could happen shortly. Singapore Exchange allowed SPACs to list from September 3, just one day after the bourse announced it had concluded the consultation on the subject.

SPACs have been one of the hottest fundraising trends since the beginning of 2020, raising nearly US$81 billion last year and US$139 billion this year as of October 28, according to Refinitiv data.
“A number of financial institutions and SPAC promoters, while preparing responses to the consultation paper, are preparing SPACs, with the vision of being among the first to be listed in Hong Kong,” said Victoria Lloyd, a partner in law firm Baker McKenzie’s capital markets practice. “There has been strong interest for SPAC listings on the Hong Kong stock exchange,” Lloyd said.

SPACS do not have any existing businesses, rather they are created to raise financial war chests and buy assets within a limited period of time, usually 18 to 24 months. At present, a majority of SPACs are listed in the US, but Britain, Malaysia and Singapore have introduced rule changes to compete for such listings.

Under the proposed rules announced by HKEX in September, a SPAC will have two years to announce a transaction and must complete it within 36 months of their formation. Hong Kong will only allow large SPACs that raise at least HK$1 billion (US$128 million) to list on its main board, the highest requirement among all exchanges.

Hong Kong’s proposed rules ban retail trading in SPACs and only professional investors with HK$8 million of assets will be allowed to trade the SPACs until they complete a merger with a company that meets the normal IPO requirements.

The SPACs listing reform was fast tracked after it received the blessing of the government. Financial Secretary Paul Chan Mo-po in March urged the HKEX to undertake a study on SPAC listings, after several local tycoons listed their blank-cheque companies in the US.

The Financial Services Development Council (FSDC), whose board members are appointed by the government to promote Hong Kong as an international financial centre, has given its full support to the HKEX proposals.

“In view of the surging interest across the globe, introducing SPACs is believed to be valuable to the city’s investment ecosystem and capital market,” FSDC said in a statement.

UBS, which has helped Hong Kong tycoons including Adrian Cheng Chi-kong and Richard Li Tzar-kai to list SPACs in the US, said that some of its clients would be interested in raising funds in Hong Kong were it to introduce the same regime.

“Hong Kong can definitely attract SPAC listings as it is an established international financial centre for mainland Chinese companies to raise funds,” John Lee, vice-chairman and head of Greater China global banking at UBS, said in a telephone interview with the Post.

While SPAC regulations in Hong Kong may seem to be more restrictive than those in the US, there were other considerations including different legal systems and risks, Lee said, citing the example of potential class action litigation risks common in the US.

Selina Cheung, co-head of equity capital markets for Asia at UBS, said any high growth company would be suited to list via SPACs.

“The SPAC listing provides more certainties for the valuation and listing. It does not need to go through the marketing process like the traditional IPOs,” she said.

While there are several hundred SPACs in the US, only 20 are headquartered in Hong Kong and five in mainland China, according to HKEX data.

“With the latest regulatory requirements in China tightening restrictions on data-sensitive companies to list overseas, mainland SPACs would find it hard to list in the US,” said Louis Lau, a partner in the capital markets advisory group at KPMG China, adding that they can still list in Hong Kong “as it is part of China”.

He said that market participants found some of the HKEX’s proposed requirements, such as those requiring at least one SPAC promoter to be licensed by the Securities and Futures Commission, limited the pool of people qualified to be promoters, and they have asked for it to be relaxed.

“Even if Hong Kong approves the regime, the number of SPAC listings here would still be lower than the US as Hong Kong has set the bar higher,” Lau said.