Hong Kong’s blank-cheque corporations are touchdown their first acquisition targets however company executives warn that tight guidelines are stifling the risk-taking they’re meant to reward.
Final month heralded the primary Hong Kong particular goal acquisition car to shut a deal, merging with Synagistics, a Singaporean ecommerce firm.
The acquisition by the blank-cheque firm, headed up by Norman Chan, former head of the Hong Kong Financial Authority, is more likely to be adopted by two different mergers which might be awaiting ultimate approval from regulators.
Hong Kong authorities regard Spacs, permitted for the primary time in 2022, as a method to reanimate their home fairness market and entice extra worldwide corporations to listing within the territory.
Spacs sometimes look to lift funds by means of itemizing on a inventory market, after which purpose to buy a non-public firm, pulling its goal on to public markets — a so-called de-spac transaction.
However executives who’ve been by means of the method are warning that trickle is unlikely to grow to be a flood.
“Arguably, it’s really extra sophisticated by way of course of than to undergo an inventory,” mentioned Katherine Tsang, who was an govt director of the funding car behind the Synagistics deal alongside Chan. She can also be a former chair of Commonplace Chartered in Higher China.
After conducting merger talks with a promising non-public firm, “they nonetheless want it to undergo your entire IPO vetting course of”, she added.
The expertise underscores the fragile stability for Hong Kong because it tries to take care of its attractiveness as a world listings hub whereas its market strikes nearer to mainland China.
KPMG estimates the territory is the fourth-largest marketplace for new listings by market worth this 12 months, however the numbers had been boosted by only one firm — the $4bn itemizing of Midea, a Chinese language electronics producer.
China’s sluggish rebound from the coronavirus pandemic has additionally damped inventory market valuations. Hong Kong’s fairness market has obtained a much-needed enhance from Beijing’s coverage stimulus launched in September, with the Hang Seng index notching its best week since 1998 upon the information of the coverage blitz.
However the market has since come down as buyers categorical disappointment within the mainland fiscal stimulus thus far and hedge the potential harm of a second Donald Trump presidency within the US.
Authorities sought to emulate the Spac growth within the US in 2021, which raised some $163bn for corporations to hunt for deal targets, in line with information from Dealogic. The brand new guidelines had been meant as one other route for dealmaking in Asia.
“The great thing about a Spac is that the funds are prepared, and for corporations seeking to listing on the Hong Kong change I feel it will likely be a beautiful various to the itemizing path,” mentioned Jean Thio, capital markets companion at regulation agency Clifford Likelihood.
She identified that personal corporations might set up their valuations by means of direct negotiation with an acquirer, somewhat than rely in the marketplace worth.
“There is perhaps particular curiosity for specialist tech corporations in addition to corporations with out market friends listed on the HK change,” she mentioned.
Nonetheless, Hong Kong additionally sought to protect towards low requirements: the US growth was broadly seen as resulting in a bubble — with one quick vendor dubbing them “castles in the sky”. Critics of the growth within the US say it enriched Spac founders and advisers whereas typically punishing buyers, particularly retail cash.
“I didn’t really feel completely snug with it [in the US] . . . the promoters had been some unusual characters, baseball stars, with no precise finance expertise performing as promoters,” mentioned Chan.
The rules stipulate that Hong Kong Spacs have to fulfill all the identical necessities as an preliminary public providing. Furthermore, in contrast to within the US, investing in Spacs is just open to skilled buyers somewhat than being a retail cash play.
Solely 5 Spacs have raised cash in Hong Kong because the new guidelines had been launched practically three years in the past, in line with Dealogic.
Optimists say Spacs can discover their utility by serving to extra area of interest, or international, corporations listing on the Hong Kong change.
Chan mentioned his firm’s “community”, which incorporates the principle buyers within the Spac, would assist the Singaporean information firm entice distributors in Higher China who’re concentrating on the massive south-east Asian market.
However as Hong Kong strikes nearer to mainland China economically, market members worry the territory’s capital markets are nonetheless overly reliant on Chinese language corporations on the lookout for an offshore secondary itemizing.
“The normal [Chinese] A-share corporations doing secondary listings wouldn’t be capable to do a de-spac,” added Thio.
“In reality, any type of Chinese language corporations could be topic to CSRC [mainland Chinese regulator] guidelines and regulatory approvals. It’s one thing that places the timeline into uncertainty.”
One adviser who works on Spac transactions in Hong Kong mentioned they had been uncertain the brand new itemizing avenue would result in any significant quantity of latest corporations itemizing within the territory.
“Hong Kong has at all times mentioned they don’t like backdoor listings. However [de-]spacs are by definition backdoor listings,” mentioned the adviser, who didn’t have authorisation to talk publicly.
“It’s no completely different to making use of for a brand new preliminary public providing — you want all of the vetting. In the event you go searching, the worldwide development is that Spacs haven’t completed properly. I don’t suppose they are going to get greater sooner or later.”
Synagistics’s share worth has underlined the rising warning. After itemizing it leapt as a lot as 400 per cent from its debut worth of HK$10 ($1.29) per share. On Wednesday it closed down at HK$12.50.
