• Zero listing applications this year, with trading papery thin
• Three major proposals to breathe life into market

Hong Kong is seeing an increasing number of participants rallying behind a movement demanding a loosening of the rules governing the city’s playbook for special purpose acquisition companies (SPACs).

Representatives from blank cheque firms TechStar Acquisition [HKG:7855], Aquila Acquisition Corporation [HKG:7836], and listing candidate Ace Eight Acquisition Corporation have formed a chorus of voices airing their grievances against current rules during a panel event hosted by The Hong Kong Institute of Financial Analysts and Professional Commentators last week.

Market participants are hoping to take advantage of the city’s first-ever de-SPAC announcement by Aquila Acquisition to capture attention of authorities.

“We understand regulators want to protect investors but when they’re over-protective, it stifles the market,” said Alex Li, Head of ECM at CNCB (Hong Kong) Capital, a promoter of Techstar Acquisition.

Stuck in a rut

Since Hong Kong’s introduction of its SPAC listing framework in January 2022, only five candidates have gone public, fewer than 14 expected when the rules first came into play. Since the city’s last SPAC listing, by TechStar Acquisition in December 2022, the bourse has not even seen any filings for SPAC listings.

Source: Dealogic

During 2022, the five SPACs that got listed in Hong Kong raised a combined total of USD 639m. That compares to 86 SPACs fetching USD 13.4bn in the US in the same year.

So far this year, 22 SPACs have listed in the US, raising USD 2.8bn. 

“If we can’t attract any more SPACs to the market, then what’s the point?” said Selwyn Siu, managing director at CMB International Capital.

On 31 August, CMB International‘s Aquila Acquisition announced a merger agreement with Chinese online steel platform ZG Group (formerly known as Zhaogang.com Inc), in a deal valuing the target at HKD 10bn (USD 1.27bn). 

While the announcement signaled to the industry that deals can be done, it also served as a reminder of the difficulty of deal execution. 

“The [Aquila] de-SPAC transaction was a long and painful process, but we’re grateful it was able to get done,” said one participant, a SPAC promoter, on the event sidelines.

Of the remaining four Hong Kong-listed blank cheque firms, none have managed to form a merger agreement so far. They have 24 months post-listing to announce de-SPAC targets, per HKEX rules.

Vision Deal HK Acquisition Corp [HKG:7827] was reportedly edging towards a deal, but that has been scuppered by a shareholder dispute around private investment in public equity (PIPE) financing, as reported by this news service.

In response to this news service's query, the Hong Kong exchange said in an email: “HKEX is committed to operating a world-class, competitive market, supporting the fundraising needs of a wide range of issuers. We are always looking at ways to elevate the attractiveness of our listing framework, helping to connect capital with opportunity and supporting the growth of some of the companies of tomorrow."

"Our well-regulated, highly regarded SPAC regime is part of our broad range of routes to market that we offer, and we look forward to continuing to welcome companies and investors who wish to take advantage of Hong Kong's broad and deep liquid markets," the exchange said.

What to do?

Among the complaints, participants argue that a mandatory requirement to raise PIPE funding has been a major choking point.

Hong Kong’s bourse requires SPACs to raise staggered amounts in PIPE, depending on the size of the de-SPAC targets. For example, targets with a market capitalization exceeding HKD 7bn (USD 892m) will require PIPE funding worth at least 7.5% of their expected valuations. At least half of the PIPE must come from at least three sophisticated investors, per HKEX rules.

“Even if we can lower the requirement just by a little, it would make a huge difference,” said another SPAC promoter on the event sidelines.

In addition, participants hope to see a relaxation in rules requiring professional investors’ participation in SPACs and an expansion of the trading remit to include retail investors. Under the current regime, SPAC shares are only tradable by professional investors and must be distributed to at least 75 professional investors.

TechStar Acquisition has yet to see any of its shares traded since 19 January 2023, while ex-HKMA chief Norman Chan’s HK Acquisition [HKG: 7841] has seen none of its stock change hands to date, according to HKEX data.

“Even the trading of virtual assets by retail investors is allowed in Hong Kong now, why [can't they trade] SPACs?” said Paul Pong, managing director at Pegasus Fund Managers and chairman at Institute of Financial Technologists of Asia. He added that blank cheque firms might attract younger-generation investors keen on investing in new-economy financial products.

Introducing a market-making mechanism for Hong Kong’s SPACs could also boost their trading performance, without investors having to potentially incur losses from large-cap investments, said Deputy General Manager at CNCB (Hong Kong) Capital Eric S.K. Chan, on the event sidelines.

Thirdly, existing rules governing SPAC warrants are seen as too restrictive. “Terms around the issue of warrants, such as the share to warrant ratio, are commercial in nature and should be decided between the SPAC and its shareholders,” Jason Wong, executive director and CEO of Ace Eight, exclusively told this news service.

“Hong Kong should be the hub for SPACs in Asia…at the moment, its status is nowhere near that,” said Wong.

To be fair, as Hong Kong is not alone in facing dwindling interest in the overall SPAC universe, the group's efforts will most likely be falling on deaf ears.