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 function 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 remaining 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 listing within the territory.
Spacs usually 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 turn into a flood.
“Arguably, it’s really extra sophisticated when it comes to course of than to undergo a list,” mentioned Katherine Tsang, who was an government director of the funding automobile behind the Synagistics deal alongside Chan. She can also be a former chair of Commonplace Chartered in Better 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 steadiness for Hong Kong because it tries to keep up 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 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 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 traders specific disappointment within the mainland fiscal stimulus to date and hedge the potential injury 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 firms to hunt for deal targets, in keeping with knowledge from Dealogic. The brand new guidelines had been supposed as one other route for dealmaking in Asia.
“The fantastic thing about a Spac is that the funds are prepared, and for firms seeking to listing on the Hong Kong change I believe it will likely be a sexy different to the itemizing path,” mentioned Jean Thio, capital markets associate at regulation agency Clifford Likelihood.
She identified that personal firms might set up their valuations by means of direct negotiation with an acquirer, relatively than rely available on the market worth.
“There could be particular curiosity for specialist tech firms in addition to firms with out market friends listed on the HK change,” she mentioned.
Nonetheless, Hong Kong additionally sought to protect in opposition to low requirements: the US increase was broadly seen as resulting in a bubble — with one quick vendor dubbing them “castles in the sky”. Critics of the increase within the US say it enriched Spac founders and advisers whereas usually punishing traders, particularly retail cash.
“I didn’t really feel totally snug with it [in the US] . . . the promoters had been some unusual characters, baseball stars, with no precise finance expertise appearing as promoters,” mentioned Chan.
The laws stipulate that Hong Kong Spacs have to fulfill all the identical necessities as an preliminary public providing. Furthermore, not like within the US, investing in Spacs is just open to skilled traders relatively than being a retail cash play.
Solely 5 Spacs have raised cash in Hong Kong for the reason that new guidelines had 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 international, firms listing on the Hong Kong change.
Chan mentioned his firm’s “community”, which incorporates the principle traders within the Spac, would assist the Singaporean knowledge 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 concern the territory’s capital markets are nonetheless overly reliant on Chinese language firms in search of an offshore secondary itemizing.
“The normal [Chinese] A-share firms doing secondary listings wouldn’t have the ability to do a de-spac,” added Thio.
“In truth, any form 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 had been uncertain the brand new itemizing avenue would result in any significant quantity of recent firms 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. Should you go searching, the worldwide development is that Spacs haven’t finished nicely. I don’t assume they’ll 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.
