Hong Kong, Singapore show up late for SPAC party before Fed sparked global hike in interest rates: analysts
- SPACs are restricted to professional investors, and only five have successfully floated their shares in Hong Kong to date
- Hong Kong and Singapore both arrived too late for the SPAC party, a broker says, just before the Federal Reserve started tightening its policy
A spike in global interest rates and tough regulatory requirements have combined to stunt the expansion of special-purpose acquisition companies (SPACs) in the Asia-Pacific region, industry experts said. A favourable turn on both fronts may reignite the concept.
Hong Kong and Singapore evaluated new rules for SPACs in 2021 after a sudden boom in initial public offerings (IPOs) by so-called blank-cheque companies in 2020 and 2021. Most of the US$245 billion in listing proceeds were generated in the US market.
Some 14 shell companies filed to list in Hong Kong last year after the new regime came into force in January 2022, according to data published by bourse operator Hong Kong Exchanges and Clearing. Five successfully floated while six applications lapsed, leaving three in the pipeline.
“Hong Kong and Singapore arrived late for the SPAC party,” said Louis Tse Ming-kwong, managing director at Wealthy Securities. “There was a time when interest rates were cut down to zero to support economies hard hit by the pandemic, with massive liquidity for SPAC investments. When the cost of funding started to increase, investors quickly shunned SPACs.”
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The SPAC frenzy died as the Federal Reserve began its lift-off in March last year in what would be the most aggressive tightening since the mid-1990s. The Fed has since raised its key rate in eight successive meetings, from near-zero to a range of 4.5 per cent to 4.75 per cent, and is poised to raise them again later this month, according to Fed funds futures.
SPACs are created – and typically anchored by well-known public figures, including celebrities and entrepreneurs – with the objective of raising capital to buy income-generating assets. In Hong Kong, a SPAC needs to raise at least HK$1 billion (US$128 million) from sophisticated investors and must announce an acquisition within 24 months.