Hong Kong’s blank-cheque firms 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 objective acquisition automobile 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 can be awaiting last 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 appeal to extra worldwide firms to checklist 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 change into 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 government director of the funding automobile behind the Synagistics deal alongside Chan. She can be a former chair of Commonplace Chartered in Better China.
After conducting merger talks with a promising personal firm, “they nonetheless want it to undergo the whole IPO vetting course of”, she added.
The expertise underscores the fragile steadiness for Hong Kong because it tries to keep up 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 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 acquired 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 traders specific disappointment within the mainland fiscal stimulus to this point 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 firms to hunt for deal targets, in response to information from Dealogic. The brand new guidelines have been meant as one other route for dealmaking in Asia.
“The fantastic thing about a Spac is that the funds are prepared, and for firms trying to checklist on the Hong Kong trade I feel will probably be a gorgeous various to the itemizing path,” mentioned Jean Thio, capital markets accomplice at legislation agency Clifford Likelihood.
She identified that non-public firms might set up their valuations via direct negotiation with an acquirer, somewhat than rely available on the market value.
“There is perhaps particular curiosity for specialist tech firms in addition to firms with out market friends listed on the HK trade,” she mentioned.
Nonetheless, Hong Kong additionally sought to protect in opposition to low requirements: the US growth was extensively seen as resulting in a bubble — with one brief vendor dubbing them “castles in the sky”. Critics of the growth within the US say it enriched Spac founders and advisers whereas usually punishing traders, particularly retail cash.
“I didn’t really feel completely comfy with it [in the US] . . . the promoters have been some unusual characters, baseball stars, with no precise finance expertise performing as promoters,” mentioned Chan.
The laws 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 simply open to skilled traders somewhat than being a retail cash play.
Solely 5 Spacs have raised cash in Hong Kong because the new guidelines have been launched practically three years in the past, in response to Dealogic.
Optimists say Spacs can discover their utility by serving to extra area of interest, or overseas, firms checklist on the Hong Kong trade.
Chan mentioned his firm’s “community”, which incorporates the primary traders within the Spac, would assist the Singaporean information firm appeal to distributors in Better China who’re concentrating on the big south-east Asian market.
However as Hong Kong strikes nearer to mainland China economically, market individuals worry the territory’s capital markets are nonetheless overly reliant on Chinese language firms on the lookout for an offshore secondary itemizing.
“The standard [Chinese] A-share firms doing secondary listings wouldn’t be capable of do a de-spac,” added Thio.
“In actual fact, any sort of Chinese language firms 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 firms itemizing within the territory.
“Hong Kong has all the time 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. Should you go searching, the worldwide pattern is that Spacs haven’t executed effectively. I don’t suppose they are going to get larger 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.
