Hong Kong proposes new rules for SPAC listings, limit them to professional investors

Hong Kong will only allow large blank-cheque companies that raise at least HK$1 billion ($128 million) to list on its main board and ban retail investors from buying these so-called special purpose acquisition companies (SPACs), according to a proposal released by Hong Kong Exchanges and Clearing (HKEX) on Friday.

The exchange operator proposed a range of tough criteria for SPACs listings, including requiring target companies to meet its normal listing requirements to go public. The proposal is open for public consultation, with deadline for responding set for October 31.

SPACs are shell companies that list on stock exchanges and then merge with an existing company to take it public, typically offering strong valuations and shorter listing time frames than initial public offerings.

“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. “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.”

The proposals, if they move forward, will mean Hong Kong is the latest major market in Asia to allow blank-cheque firms to go public. Singapore adopted new rules this month allowing SPACs to list in the city state.

Under the proposed rules in Hong Kong, 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 meet listing rules on Hong Kong’s main board.

By comparison, Singapore regulators set a minimum market cap of S$150 million ($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.

SPACs will have two years to announce a transaction and must complete it within 36 months of their formation. In addition, only professional investors would be able to invest in a SPAC until it has merged with a target company.

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.

The company that is acquired by a SPAC must also meet the same requirements as would a company listing in Hong Kong via an IPO, including being approved by the bourse’s listing committee.

While Hong Kong has already been the world’s biggest IPO market seven times in the past 12 years, it is still worth adding SPACs to the market, as this type of listing has the advantage of allowing companies to go public in a quick manner, cutting down on book building time seen in the traditional listing process, said HKEX’s Chan.

She added that a lot of companies had expressed interest in exploring a SPAC listing in Hong Kong, and that according to the HKEX’s count, 25 US-listed SPACs are headquartered in greater China, and approximately 12 companies in Asia have been acquired by a SPAC in recent years.

“SPACs listings will compliment the current listing regime. We are also aware that the market has a lot of concerns about the company quality, and we have a wide range of measures in place,” she added.

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.