Hong Kong proposes SPAC listings, but only for professional investors

The International Finance Centre, HSBC headquarters and the Bank of China are seen in Hong Kong.   © Reuters

NARAYANAN SOMASUNDARAM, Nikkei Asia regional finance editor | Hong Kong

HONG KONG — Hong Kong Exchanges & Clearing, Asia’s busiest stock exchange, has outlined plans to allow the listing of blank-check shell corporations whose global popularity has soared over the past year, just two weeks after regional rival Singapore greenlit the float of such entities.

HKEX, however, proposes to take a more cautious approach than Singapore or the U.S., the main hub for special purpose acquisition companies (SPACs).

Under the proposal offer for public comment on Friday, only institutional investors or individuals with a portfolio worth at least 8 million Hong Kong dollars ($1.03 million) would be allowed to invest in Hong Kong SPACs.

HKEX would also require that at least one of the sponsoring investors listing a SPAC be an asset manager or corporate finance adviser licensed in Hong Kong.

SPACs raise capital through a market listing then absorb existing private companies. The SPAC route can give private companies a faster and simpler route to public markets than the normal initial public offering process — and often a higher valuation.

The HKEX’s proposal follows a push from Hong Kong government officials for the city to capitalize on the frenzy for SPACs in U.S. markets.

The Hong Kong bourse is cautiously following its counterparts in Amsterdam, Frankfurt, London, Paris, Singapore and the U.S. on SPACs — special purpose acquisition companies.   © Reuters

As of mid-July, 20 SPACs based in Hong Kong and five from mainland China had raised $4.2 billion in the U.S., according to HKEX data. Earlier this week, Artisan Acquisition Corp., a SPAC sponsored by Hong Kong billionaire Adrian Cheng, reached agreement to buy local biotechnology startup Prenetics in a $1.25 billion deal.

HKEX is always looking for ways to enhance “market quality and market attractiveness,” said Bonnie Chan, head of listings. “The introduction of a Hong Kong SPAC listing framework will provide another attractive route to listing in Hong Kong, allowing more companies from greater China, Southeast Asia and beyond to seek a listing.”

However, the entry of Hong Kong and Singapore into the SPAC race comes as interest in the vehicles has begun to cool in the U.S. amid stepped-up regulatory scrutiny and a surge of lawsuits by investors claiming to have been misled.

Some 500 SPACs have raised almost $210 billion globally since the start of 2020, mostly in the U.S. Over half that sum was raised this year though the pace of listings has slowed in recent months, even as London, Amsterdam, Frankfurt and Paris have also joined the competition.

Under the HKEX plan, which is open for comment until Oct. 31, sponsors’ holdings in a SPAC would be capped at 30% initially while each listing should bring in at least HK$1 billion. Chan said these restrictions would help maintain Hong Kong’s “reputation for high-quality listings and stable secondary trading.”

The Singapore Exchange unveiled its final rules for SPACs earlier this month after watering down its minimum market capitalization and limits on warrants and share redemption after feedback from market participants.

Unlike Singapore, which has for years seen more market exits than listings, Hong Kong has seen record IPO volumes. Last year new listings reached a record $51.6 billion and so far this year, companies have raised $35.5 billion via new HKEX offerings, according to data compiled by Dealogic.

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