09.20.2021

Hong Kong Consults on SPACs

  • The Exchange is seeking market feedback on proposals to create a listing framework for SPACs in Hong Kong
  • Proposed approach is designed to welcome SPAC listing applications from experienced and reputable SPAC Promoters seeking good quality De-SPAC Targets
  • Market feedback sought during 45-day consultation period

The Stock Exchange of Hong Kong Limited (the Exchange), a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEX),  published a consultation paper seeking market feedback on proposals to create a listing regime for special purpose acquisition companies (SPACs) in Hong Kong (Consultation Paper).

“As Asia’s premier global listing market, HKEX is always looking for ways to enhance its listing framework, striking the right balance between delivering appropriate investor protections, market quality and market attractiveness. We believe the introduction of a Hong Kong SPAC listing framework will provide another attractive route to listing in Hong Kong, allowing more companies from Greater China, Southeast Asia and beyond to seek a listing on HKEX,” said HKEX Head of Listing, Bonnie Y Chan.

A SPAC is a type of shell company that raises funds through its listing for the purpose of acquiring a business (a De-SPAC Target) at a later stage (a De-SPAC Transaction) within a pre-defined time period after listing.

The Exchange is seeking market feedback on its SPAC proposals and the proposed Listing Rules to implement them; responses are sought from the market over the next 45 days. The deadline for responses is 31 October 2021. Interested parties are encouraged to respond to the Consultation Paper by completing and submitting a questionnaire on the HKEX website.

“To maintain Hong Kong’s reputation for high quality listings and stable secondary trading, safeguards are included in our SPAC listings proposals, which are designed to welcome experienced and reputable SPAC Promoters1 that seek good quality De-SPAC Targets.” added Ms Chan.

A summary of the Consultation Paper’s key proposals is set out below:

Pre De-SPAC Transaction Proposals

  • Investor Suitability: the subscription for and trading of a SPAC’s securities would be restricted to professional investors only. This restriction would not apply to the trading of the Successor Company2 shares post the De-SPAC Transaction;
  • SPAC Promoters: SPAC Promoters must meet suitability and eligibility requirements, and each SPAC must have at least one SPAC Promoter which is an SFC licensed firm3 holding at least 10 per cent of the Promoter Shares4;
  • Dilution Cap: Promoter Shares are proposed to be capped at a maximum of 30 per cent of the total number of all shares in issue as at the initial offering date; and a similar 30 per cent cap on dilution from the exercise of warrants is also proposed; and
  • Fund Raising Size: the funds expected to be raised by a SPAC from its initial offering must be at least $1 billion.

De-SPAC Transaction Proposals

  • Application of New Listing Requirements: a Successor Company must meet all new listing requirements (including minimum market capitalisation requirements and financial eligibility tests);
  • Independent Third Party Investment: this would be mandatory and must constitute at least 15 to 25 per cent of the expected market capitalisation of the Successor Company, validating the valuation of the Successor Company;
  • Shareholder Vote: a De-SPAC Transaction must be approved by SPAC shareholders at a general meeting (which would exclude the SPAC Promoter and other shareholders with a material interest); and
  • Redemption Option: SPAC shareholders must be given the option to redeem their shares prior to: a De-SPAC Transaction; a change in SPAC Promoter; and any extension to the deadline for finding a suitable De-SPAC Target.

Liquidation and De-listing

  • Return of Funds to Shareholders: if a SPAC is unable to announce a De-SPAC Transaction within 24 months, or complete one within 36 months, the SPAC must liquidate and return 100 per cent of the funds it raised (plus accrued interest) to its shareholders. The Exchange will then de-list the SPAC.

Source: HKEX

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