Hong Kong Set to Overtake Singapore in SPAC Market, With Help From Mainland Sponsors

The Hong Kong Stock Exchange has received IPO applications from six SPACs in the last month, most with major mainland backers

Key Takeaways:

• Hong Kong has received six SPAC listing applications in the last month, even as regional rival Singapore’s similar program starts to turn quiet
• Most of Hong Kong’s SPAC applicants are backed by mainland Chinese companies, highlighting a major advantage the city enjoys over Singapore

By Jony Ho

Hong Kong is quickly catching up with Singapore in the race to be Asia’s leading market for IPOs using special purpose acquisition companies (SPACs), drawing on strong support from corporate giants across the border in mainland China.

Last September Singapore became the first Asian city to introduce a SPAC mechanism that has become all the rage lately in the U.S. Four months later on Jan. 20, the first Asian SPAC went public in the Southeast Asia city. Determined not to be outdone, the Hong Kong Stock Exchange (0388.HK) unveiled its own SPAC mechanism, which took effect on Jan. 1 after three months of consultation. Since receiving its first listing application, the Hong Kong exchange has received five more in just one month, in a more positive response than some initially predicted.

A SPAC is a publicly traded shell company filled with nothing but cash after making an IPO. By purchasing a real company through the issue of shares or cash transactions, it can help such companies go public using its shell as the listing vehicle. This type of backdoor listing, which is more lightly regulated than traditional IPOs, first appeared in the U.S. in 1993. But it has only started to catch on in recent years, leading to the latest interest in Asia.

On Jan. 20 Vertex Technology, backed by Singaporean sovereign wealth fund Temasek, floated its shares in the stock market and raised S$200 million ($149 million). That made it the first entity to successfully use the SPAC mechanism in Singapore, as well as the wider Asian region.

The next day, another SPAC IPO was made by Pegasus Asia, supported by Financiere Agache, the company controlled by the president of LVMH Bernard Arnault. A third SPAC, Novo Tellus Alpha Acquisition, began trading in Singapore on Jan. 27. That means three SPACs went public in Singapore in just eight days, starting a clock that now gives them 24 months to complete acquisitions with real companies.

By comparison, the Hong Kong SPAC mechanism didn’t expect much excitement because it was off-limits to retail investors. The Singaporean version also met with lukewarm reception, with only around 1.5% to 2% of the shares available to public investors by the city’s three SPACs. Thus, such listings are being seen as a feast for the very few.

Disappointing debuts

While only major investors could buy into the offerings, all three Singapore companies’ stocks have been disappointments post-trading debut. Vertex Technology and Pegasus Asia only rose 1% and 0.4%, respectively, on their first trading days. Novo Tellus did even worse, closing down 2.8% from its IPO price. No other SPAC had gone public as of Feb. 17, indicating the market has begun with a whimper rather than the big bang many had hoped for.

By comparison, Hong Kong, as an international financial center with the envious unique advantage of being so close to the vast mainland market, has been going from strength to strength. A total of six SPACs have filed for IPOs during the period from Jan. 17 to Feb. 17.

The first was Aquila Acquisition Corp., set up by a financial group spearheaded by CMB International Asset Management Ltd., the management arm of China Merchants Bank (3968.HK). Given the state-owned background of the company, as we emphasized in a previous article, Aquila’s pioneering action has important symbolic significance in showing Beijing’s support for the Hong Kong market.

Most of Hong Kong’s other SPACs have also been capitalized by mainland companies. One is Trinity Acquisition, launched by Li Ning, the president and founder of local sportswear giant Li Ning Co. Ltd. (2331.HK), which filed for IPO on Jan. 31. The SPAC hopes to attract a company focused on new economy consumer brands, and could potentially forge a partnership with Li Ning Co.’s own traditional sportswear business.

Filing the same day was Interra Acquisition, co-established by ABC International, a subsidiary of banking major Agricultural Bank of China (1288.HK; 601288.SH), and Chinese venture capital fund Primavera Capital Group, founded by a former top Goldman Sachs official. Interra is targeting fast-growing companies in Greater China from fields such as new-tech, consumption and new retail, advanced manufacturing, healthcare and climate action.

Vision Deal HK Acquisition, co-established by David Wei, founder of Vision Knight Capital and also a former CEO of Alibaba (9988.HK, BABA.US), filed for an IPO on Feb. 15. It has set its sights on Chinese companies with expertise in supply chains and cross-border e-commerce in the smart vehicle sector. On Jan. 28, Tiger Jade Acquisition, launched jointly by Tiger Jade Capital and Dragonstone Capital Management, also submitted its IPO application, targeting the healthcare sector for potential targets in the Greater China region.

Then there’s Ace Eight Acquisition Corp., which has a strong local Hong Kong flavor. Its founders include Norwich Capital founder Jason Wong, who has been dubbed “the godfather of the SPAC in Asia” and has been involved in IPOs for multiple U.S. SPACs, and Tse Kam Pang, the chairman of Royale Home Holdings (1198.HK). Shareholders include legislators active in Hong Kong politics like Kenneth Lau. The company focuses on Asia, especially industries such as biotech, telecoms and media in mainland China.

IPO fast track

With that flurry of six SPAC filings, the next question is when they might come to market. Experts estimate that given the much simpler procedures for SPAC listings versus traditional IPO, three months might be enough to complete the whole process, clearing the way for a new type of bell-ringing ceremony. We could learn which of the six wins the title of “first Hong Kong SPAC” as soon as sometime this quarter.

The recently published “Asia Private Equity Insights 2022” report by Grant Thornton Hong Kong points out that despite surging Covid-19 cases, private equity transactions in Asia jumped by 1.38 times in value last year, which speaks to strong liquidity in the market in the low-interest-rate environment.

In such an environment, Hong Kong SPACs could provide a new way for private equity investors in Asia, especially in Greater China, to cash out of their investments. Such SPAC listings could also appeal as relatively low-risk, less costly and less time-consuming alternatives for Chinese companies having second thoughts about getting listed in the U.S. due to relatively lower valuations and as Washington intensifies its scrutiny of those companies. With all those factors in their favor, Hong Kong SPACs could see more applications going forward, fueled by strong support from private equity investors.

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