Hong Kong may allow listings by SPACs, as local tycoons look overseas to tap deal making frenzy

Special purpose acquisition companies, or ‘blank-cheque companies’, have raised US$60.2 billion year to date
Hong Kong has rules to allow cash companies to list but investor protection is a concern

HKEX

Enoch YiuandChad Bray

Published: 7:45pm, 2 Mar 2021

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Hong Kong’s financial regulators may open the door for so-called blank-cheque companies to raise funds on the city’s stock market, as local tycoons are being driven offshore to tap a deal making frenzy.

The city’s securities regulator and stock-market operator were studying proposals allowing special purpose acquisition companies (SPACs) to raise capital on the Hong Kong stock exchange, according to a briefing on Monday to the Financial Leaders Forum, which was chaired by Financial Secretary Paul Chan Mo-po.

The Securities and Futures Commission (SFC) and Hong Kong Exchanges and Clearing (HKEX) have been instructed to explore suitable listing regimes to enhance the competitiveness of Hong Kong as an international financial centre while safeguarding the interests of the investing public, according to a government statement.

“The government has required the stock exchange and the regulator to study promoting SPACs to list in Hong Kong, in a bid to add in new fundraising channels, while at the same time to offer sufficient investor protection measures,” Chan said in a Bloomberg TV interview on Tuesday.

SPACs use investors’ capital to assemble financial war chests for buying assets, typically unlisted companies. Dubbed “blank-cheque companies” because they usually have minimal constraints, such as time limits, SPACs are the hottest phenomenon in deal making, with about US$60 billion raised this year, or more than half of the amount fetched last year, according to Bloomberg data.

A growing number of Asian funds, not least those led by the scions of two of Hong Kong’s wealthiest families, are looking at listing their SPACs in Singapore and elsewhere.

Bridgetown Holdings, backed by PayPal founder Peter Thiel and Richard Li, tycoon Li Ka-shing’s younger son, raised US$595 million last October on the Nasdaq market. The SPAC is in early talks to acquire a minority stake in the Indonesian e-commerce firm Tokopedia, a person familiar with the matter said in December.

Adrian Cheng Chi-kong, the third-generation scion of New World Development, is working with financial advisers to raise up to US$400 million in an IPO for his SPAC in an undisclosed market, according to people familiar with the matter. Executives from the company, one of Hong Kong’s largest conglomerates with businesses that range from consumer products to public transport, property and telecommunications, declined to comment.

Most SPACs are currently listed in the United States, while Singapore is also studying allowing such companies to list. In Hong Kong, the stock exchange already allows Chapter 21 companies, which work somewhat similarly to SPACs, to list and raise funds for investments.

“It is not difficult to allow SPACs to list in Hong Kong, as the stock exchange can easily revamp its Chapter 21 company rules. The key issue is how to introduce a proper investor protection regime.

Unlike the US, which allows class action for investors seeking compensation, Hong Kong relies on the SFC and the stock exchange to act as gatekeepers,” a source familiar with the listing rules said.

“HKEX will closely monitor global trends and explore different types of listings. However, we won’t simply copy what others do, while we have a regulatory regime that ensures that we have proper investor protection measures in place,” Calvin Tai, HKEX’s interim chief executive, said during a results briefing last week.

The SFC was working with the bourse operator to determine suitable listing regimes that would enhance the competitiveness of Hong Kong as an international financial centre, while safeguarding the interests of the investing public, a commission spokesman said on Tuesday.

Allowing SPACs to raise funds in Hong Kong would be a boon for the local exchange, opening up a new income stream after the city’s 2018 listing reforms turned it into the world’s preferred initial public offering (IPO) destination for Chinese technology and pre-revenue biotechnology companies.

As many as 43 companies have raised a combined HK$420 billion (US$54.1 billion) under the new regime in Hong Kong since 2018, making up 40 per cent of all capital raised during this period. These listings have added HK$11 trillion in capitalisation to the world’s third-largest stock market, according to exchange data.

As a whole, SPACs raised US$60.2 billion globally year to date, including a record US$34.6 billion in February, according to data from Refinitiv. It was the fastest pace for fundraising by blank-cheque companies dating back to 2000, and followed a record US$79.3 billion raised in 2020, according to Refinitiv. Between 2000 and 2019, SPACs raised a combined US$79.5 billion.

The breathtaking pace of fundraising has been matched by an equally torrid appetite for acquisitions this year, as these investment vehicles must complete a deal within two years or be forced to return the money raised.

According to Refinitiv, blank-cheque companies have signed 71 deals worth a combined US$156 billion year to date, with the bulk of these acquisitions agreed in February. SPACs engaged in 163 transactions worth a combined US$157.5 billion in all of 2020.

Additional reporting by Peggy Sito