The Stock Exchange of Hong Kong unveiled its new listing regime for special purpose acquisition companies (SPACs) on 17 December, following the conclusion of a public consultation that began in September. The Listing Rule amendments were brought into effect on 1 January 2022.
A SPAC is a type of shell company – sometimes known as a ‘blank cheque’ company – that raises funds through an initial public offering (IPO) for the purpose of acquiring an operating company within a pre-defined time after listing. At the time of the IPO, SPACs have no business operations and no assets other than the proceeds from their IPO and the funds required to pay for their expenses.
The funds raised from a SPACs listing will be used for the sole purpose of acquiring a target business, a process also known as ‘de-SPACing’. If the SPAC is unable to acquire the target business within the specified time period, the SPAC will either search for another target or return the raised capital to its investors. After the acquisition, investors will either redeem their shares and receive any interest accrued or swap their shares in the SPAC for the shares in the acquired business.
Issuance of US-listed SPACs has surged dramatically in recent years. There were 34 US SPAC IPOs in 2017 raising USD10 billion, increasing to 248 in 2020 raising USD83 billion. In 2021, the number of US SPAC IPOs leapt to 613, raising over USD161 billion. This represented 63% of total US IPOs by number and 48% by proceeds raised.
Singapore and Hong Kong have been seeking to accommodate SPACS to ensure their continued competitiveness after several Asian investors expressed interest in raising funds through SPACs in the US. The Singapore Exchange (SGX) announced new rules to enable SPACs to list on its mainboard from 3 September.
“HKEX is fully focused on making Hong Kong’s markets internationally attractive, competitive and diversified,” said Nicolas Aguzin, Chief Executive Officer of Hong Kong Exchanges and Clearing (HKEX).
“Our new SPAC listing regime reflects our commitment to continue to build Hong Kong’s reputation as the region’s premier capital-raising market, reinforcing its global role as a world-leading international financial centre. By enabling experienced and reputable SPAC Promoters to source listings from new and innovative industries, we look to help fuel the growth of the companies of tomorrow.”
Under Hong Kong’s new rules, all SPAC Promoters must meet HKEX’s suitability and eligibility requirements. The IPO fund raising amount must be a minimum of HK$1 billion (approx. USD128 million) with an issue price of at least HK$10 per share.
Subscription for and trading of a SPAC’s securities before a De-SPAC transaction will be restricted to professional investors only and each type of SPAC securities – shares or warrants – must be distributed to at least 75 professional investors, of which 20 must be institutional professional investors.
The number of ‘promoter shares’ issued to SPAC promoters must not represent more than 20% of the total number of the SPAC’s issued shares as at its listing date. Following completion of the ‘de-SPAC transaction’, SPACs are permitted to issue additional promoter shares capped at 10% of the total number of shares in issue as at the SPAC’s listing date.
All the gross proceeds of a SPAC’s initial offering – excluding the proceeds of promoter shares and warrants – must be held in a ring-fenced escrow account that is domiciled in Hong Kong and operated by a qualified trustee or custodian. Interest or other income earned on the funds may be used by a SPAC to settle its expenses.
An announcement of the finalisation of the terms of a de-SPAC transaction must be published within 24 months of the date of SPAC’s initial listing and the transaction must be completed within 36 months. A maximum extension of six months may be granted by HKEX upon request in respect of either the announcement or transaction deadline.
A de-SPAC transaction is conditional on approval by a SPAC’s shareholders in general meeting. SPAC promoters and other shareholders with a material interest in the transaction, and their close associates, will be required to abstain from voting and any outgoing controlling shareholders of the SPAC and their close associates will be prohibited from voting in favour of the resolution. Shareholders can vote against a de-SPAC transaction and still have the option to redeem their investment.
HKEX will suspend trading of a SPAC’s securities if it fails to announce or complete a de-SPAC transaction within the applicable deadlines. In such a case, a SPAC must return funds to its shareholders (excluding holders of promoter shares) on a pro rata basis, for an amount per SPAC share that is not less than the price at which the shares were issued at the SPAC’s initial offering without interest, within one month. After returning funds to its shareholders, the SPAC must liquidate. The HKEX will automatically cancel the SPAC listing upon completion of the liquidation process.
Aquila Acquisition Corp is the first to file for Hong Kong listing on 17 January with CMBI and Morgan Stanley as the sponsors, global co-ordinators and bookrunners of the transaction.