Hong Kong Tests the Waters with SPAC IPOs – The Diplomat

Pacific Cash | Economic system | East Asia

On March 18, Hong Kong Exchanges and Clearing Restricted (HKEX) welcomed the primary IPO of a particular objective acquisition firm (SPAC). The agency, Aquila Acquisition Corp, was greeted with a lukewarm reception by traders, and shares are buying and selling about 3 p.c decrease than their preliminary itemizing worth. Whereas investor momentum could take time to catch up, there’s a excessive demand for SPAC public choices, and HKEX has reported that they’ve obtained 11 functions for extra SPAC IPOs.

Whereas SPACs are already frequent in different main equities exchanges, together with the New York Inventory Alternate, Hong Kong has solely lately given them the greenlight. In September 2021, HKEX launched a session paper on SPACs, searching for suggestions from market members. After receiving substantial assist for the concept, HKEX formally launched pointers for SPAC IPOs in January 2022.

SPACs include distinctive regulatory oversight and funding points, and, of their session paper, HKEX famous the SEC’s highlighted scrutiny of SPAC corporations in america. Of major concern is the big amount of SPAC listings in america, which has created an oversupply for de-SPAC transactions, leading to low-quality investments. IPO funds raised by U.S.-listed SPACs have risen dramatically in recent times. In 2019, proceeds from SPAC IPOs amounted to $13.6 billion. Within the first half of 2021 alone, proceeds for these IPOS had reached a whopping $111 billion.

Past that, SPACs are liable to problems with shareholder protections and disclosure requirements. On condition that Hong Kong is a retail investor dominated market, which implies that traders wouldn’t have the identical capability for personal litigation as U.S. institutional traders, there have to be sure assurances given to traders.

So as to guarantee its status for top of the range listings and investor protections, HKEX sought to create a novel framework for SPAC IPOs. Foremost, to forestall the hypothesis and market abuse that has arisen alongside the U.S. SPAC growth, Hong Kong has restricted SPAC buying and selling to skilled traders solely. Second, HKEX laid out stringent necessities for SPAC IPOs, together with a minimal anticipated IPO market worth of HK$1 billion.

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By implementing comparatively extra stringent guidelines on each SPAC IPO necessities and share buying and selling {qualifications}, HKEX will search to uphold its status for market high quality. Concurrently, HKEX’s willingness to undertake these new SPAC itemizing guidelines expresses a purpose to deepen monetary markets in Hong Kong.

Hong Kong competes with different main monetary hubs, together with New York and London, to supply secondary listings for mainland Chinese language and Southeast Asian companies. In keeping with HKEX’s session report, “Within the final three years, 12 Higher China and Southeast Asian corporations have listed within the US by way of a De-SPAC.” Additionally, Singapore and the UK have lately issued consultations on to introduce SPAC itemizing regimes inside their very own nations. So, providing this new approach to market could possibly be a key aggressive benefit for Hong Kong within the close to time period.

As regulatory scrutiny of Chinese language corporations which might be publicly traded in america intensifies, Hong Kong is uniquely positioned to supply protected haven to Chinese language corporations as a secondary itemizing or major itemizing hub. The SEC even lately notified 5 Chinese language public corporations that they could possibly be delisted in the event that they fail to adjust to required audits from the Public Firm Accounting Oversight Board. Momentum has already been shifting, and this smart transfer to welcome SPAC choices in Hong Kong will assist to maneuver the needle additional.