Sponsors of US-listed special purpose acquisition companies (SPACs) are avoiding targets in China as the heightened regulatory scrutiny has diminished their appeal, with blank-cheque firms now looking at the wider Asia-Pacific region to pursue deals. Some 530 US SPACs have yet to find a suitable asset for injection since their initial public offerings (IPOs) in 2021, data from Refinitiv shows. An aversion to assets or targets in China has added to the challenge. Nearly one-fifth of the 53 SPACs listed in the US in the first three months this year have specifically stated that they would not merge with companies with their principal business in China, a study by research firm GlobalData showed. “We have definitely seen a cooling of interest among SPACs in [China] targets,” said Michelle Heisner, a partner in Baker McKenzie’s capital markets practice in New York. “While China has been a go-to jurisdiction for potential listings, I do expect that SPACs will be looking further afield in Asia.” Chinese companies accounted for five of the 18 deals in Asia-Pacific by US sponsors in 2021, valued at US$3.7 billion. One of them was the Canadian doughnut-and-coffee chain operator Tim Hortons’ China joint venture, which merged with US SPAC Silver Crest Acquisition in a US$1.7 billion deal. SPACs are shell companies created to raise funds from investors, using the proceeds to buy assets within a limited period of time, usually 24 months, failing which they must liquidate and return the capital to investors. Some of the 2021 US SPACs may have less than nine months to do so. In the past one year, Chinese companies have become a high-risk proposition for US sponsors as the Securities and Exchange Commission (SEC) is scrutinising SPAC filings related to Chinese companies more closely. The SEC has mandated more disclosure requirements on Chinese companies as it has expressed scepticism over their often-used variable interest entity (VIE) structure. Some sponsors are also wary of a law to delist foreign companies from US exchanges if they fail to turn over audit results for three straight years , said GlobalData analyst Keshav Kumar Jha. How lack of insurance for SPAC directors threatens to derail M&A deals under Hong Kong’s new listing regime SPAC promoters who are interested in Chinese companies were likely to choose Hong Kong as a listing venue, said John Lee, head of Greater China for global banking at UBS. He added that there were many unicorns in the healthcare sector, making them attractive merger targets. US SPACs are scouring the wider Asia-Pacific region for deals because there are too many of them chasing after a limited number of viable US targets. Baker McKenzie acted as the Taiwan counsel for SPAC Poema Global’s merger with Taiwanese e-scooter maker Gogoro , which got listed on the Nasdaq this month. Gogoro is the third Taiwanese company among the 23 US SPAC deals in Asia-Pacific since 2021, Refinitiv data shows. About 10 per cent of the US SPACs that have yet to identify a merger target are backed by Asia-based private equity investors and family offices, said Samson Lo, co-head of Asia-Pacific M&A at UBS. They are more likely to look for acquisitions in the region, he added. “We expect this year and next to be big for SPACs’ merger activities in Asia-Pacific,” said Lo. “Once people see more Chinese businesses get successfully approved and merged with US SPACs, I believe more activity will return to the market.”