How lack of insurance for SPAC directors threatens to derail M&A deals under Hong Kong’s new listing regime

Name: SPACs: Everything you need to know about the finance world’s new big thing
Uploaded: 2022-02-14T01:30:21.000Z
Duration: 3 min 34 s
Description: SPACs: Everything you need to know about the finance world’s new big thing

Directors of blank-cheque companies face legal liability risks from a lack of insurance options in Hong Kong, sponsors say

Pricey premiums charged for covering SPAC directors’ legal risks could pose risks to M&As

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The flag of Hong Kong Exchanges & Clearing (HKEX) is displayed at the Exchange Square complex in Central. The exchange’s new rules have made it possible for SPACs to list from January this year. Photo: Sam Tsang

Georgina LeeandEnoch Yiu

Published: 9:30am, 14 Feb 2022

The dearth of insurance that protects directors of special purpose acquisition companies (SPAC) from legal liability could hold back mergers and acquisitions and prove to be a setback for Hong Kong’s new listing regime, according to sponsors and insurance players.

The lack of so-called directors and officers (D&O) liability insurance in Hong Kong has been cited as a risk factor by sponsors of SPACs – shell companies that raise funds through a share sale and use the proceeds to buy assets within a limited period of time.

Only a few insurers provide such coverage, and those that do charge a high premium, which could make it difficult for SPAC sponsors to fulfil their ultimate goal of delivering a return to investors through mergers with target companies, according to several SPAC applicants pursuing listings in Hong Kong.

“We may not be able to obtain D&O insurance on acceptable terms, or at all, in Hong Kong,” according to a filing by Trinity Acquisition Holdings, a SPAC whose backer includes former Chinese Olympic gymnast Li Ning. “[This] could make it difficult and expensive for us to … complete [an acquisition].”

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SPACs: Everything you need to know about the finance world’s new big thing

There are only “a handful” of insurers in Hong Kong that offer D&O insurance to SPAC directors, and the premium can be five times more expensive than that charged for a traditional IPO, said Murray Wood, Asia-Pacific head of specialty products at global insurance broker Aon.