Hong Kong proposes SPAC listings, restricts to professional investors
- Blank-cheque companies must raise at least US$128 million to list on the Hong Kong stock exchange’s main board
- Retail investors will only be able to buy after a de-SPAC transaction
“We want to provide an alternative listing method for issuers instead of replacing the current regime,” Bonnie Chan, the HKEX’s head of listings, said in a media telephone call on Friday. “We do not believe SPACs will replace the traditional way of listing. In the US, there have been a lot of SPAC listings, but there are still a lot of companies listing in the traditional channel.”
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The fundraising fervour over SPACs this year has driven bourse operators in Singapore and Hong Kong to consider rule changes to let blank-cheque companies go public, particularly as some of Hong Kong’s wealthiest investors have gone to the US to list their SPACs.
With Hong Kong feeling the pressure to follow suit as an international financial centre, there have been concerns that allowing SPACs would lower the quality of the stock market and spoil efforts to crack down on back-door listings in recent years.
Christopher Cheung Wah-fung, a lawmaker for the financial services sector and CEO of local brokerage firm Christfund Securities, applauded the short consultation period, saying that the timetable to introduce SPACs needed to be quick.
“There are a lot of small and medium-sized companies that need to raise funds,” Cheung said. “SPACs will add a new listing route for them.”
“SPACs listings will complement the current listing regime. We are also aware that the market has a lot of concerns about the market quality, and we have a wide range of measures in place,” she added.
To safeguard the interests of investors, HKEX has proposed allowing only professional investors who have at least HK$8 million in assets and investment experience to buy into SPACs. Only following a merger and a so-called de-SPAC transaction will retail investors be allowed to invest in these companies.
A SPAC must raise at least HK$1 billion, so only larger transactions can proceed. Also, target companies will need a minimum implied market capitalisation of HK$500 million to met listing rules on Hong Kong’s main board.
By comparison, Singapore regulators set a minimum market cap of S$150 million (US$112 million) and limited SPACs to the SGX’s main board. That is lower than the minimum market cap of S$300 million proposed earlier this year and more in line with thresholds for listings on the New York Stock Exchange or Nasdaq.
“Hong Kong has always needed to compete with other markets, including the US and Singapore. I do not see much difference in terms of SPACs,” Chan said.
In the US, sport stars, such as former NFL quarterback Colin Kaepernick and tennis star Serena Williams, and other non-financial experts have acted as sponsors on SPACs. That will not happen in Hong Kong, Chan said.
Regulators will require at least one SPAC promoter to be licensed by the Securities and Futures Commission, which must hold at least 10 per cent of the promoter’s shares. The other promoter must also have prior experience related to SPACs or financial experience. Their ownership will be capped at a maximum of 30 per cent of the total number of all shares issued.
To allay concerns over Hong Kong’s lack of class-action litigation, the proposed regulations include measures that restrict the ability of promoters to push through deals, as well as other measures to protect retail investors.
“It is important to have investor protection in place. The US is also studying having more regulations on SPACs,” said King Au King-lun, executive director of the Financial Services Development Council.
