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 function 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 prone to be adopted by two different mergers which are awaiting last approval from regulators.
Hong Kong authorities regard Spacs, permitted for the primary time in 2022, as a technique to reanimate their home fairness market and entice extra worldwide corporations to record within the territory.
Spacs sometimes look to boost funds via itemizing on a inventory market, after which intention to buy a personal firm, pulling its goal on to public markets — a so-called de-spac transaction.
However executives who’ve been via the method are warning that trickle is unlikely to grow to be a flood.
“Arguably, it’s truly extra sophisticated when it comes to 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 Customary Chartered in Larger China.
After conducting merger talks with a promising non-public firm, “they nonetheless want it to undergo your complete 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 global 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 yr, however the numbers have 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 increase 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 to date and hedge the potential harm of a second Donald Trump presidency within the US.
Authorities sought to emulate the Spac increase within the US in 2021, which raised some $163bn for corporations to hunt for deal targets, in keeping with knowledge from Dealogic. The brand new guidelines have 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 record on the Hong Kong trade I feel will probably be a sexy different to the itemizing path,” mentioned Jean Thio, capital markets accomplice at legislation agency Clifford Probability.
She identified that personal corporations may set up their valuations via direct negotiation with an acquirer, quite than rely available on the market value.
“There could be particular curiosity for specialist tech corporations in addition to corporations with out market friends listed on the HK trade,” she mentioned.
Nevertheless, Hong Kong additionally sought to protect in opposition to low requirements: the US increase was broadly seen as resulting in a bubble — with one brief vendor dubbing them “castles in the sky”. Critics of the increase within the US say it enriched Spac founders and advisers whereas typically punishing buyers, particularly retail cash.
“I didn’t really feel fully snug with it [in the US] . . . the promoters have been some unusual characters, baseball stars, with no precise finance expertise appearing as promoters,” mentioned Chan.
The rules stipulate that Hong Kong Spacs have to satisfy 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 quite than being a retail cash play.
Solely 5 Spacs have raised cash in Hong Kong for the reason that new guidelines have been launched almost three years in the past, in keeping with Dealogic.
Optimists say Spacs can discover their utility by serving to extra area of interest, or overseas, corporations record on the Hong Kong trade.
Chan mentioned his firm’s “community”, which incorporates the principle buyers within the Spac, would assist the Singaporean knowledge firm entice distributors in Larger China who’re concentrating on the massive south-east Asian market.
However as Hong Kong strikes nearer to mainland China economically, market contributors 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 have the ability 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 have been uncertain the brand new itemizing avenue would result in any significant quantity of recent 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 totally 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 carried out nicely. I don’t suppose they are going to get greater sooner or later.”
Synagistics’s share value has underlined the rising warning. After itemizing it leapt as a lot as 400 per cent from its debut value of HK$10 ($1.29) per share. On Wednesday it closed down at HK$12.50.
