.png){kind=tracking}
The future of SPACs in Hong Kong
- Stefan Schmierer
- Mar 24, 2022
- 4 min read
Updated: Apr 24
Author: Stefan Schmierer, Managing Partner
In May 2021, we issued an article about Special Purpose Acquisition Companies (“SPACs”), which can serve as an accelerated way to publicly list a company and raise capital compared to a traditional IPO. This article focuses on the future of SPACs in Hong Kong and the ongoing competition between Hong Kong and Singapore as SPAC destinations.
SPACs Can Accelerate a Public Listing to Raise Capital
During the process, a newly created company, the SPAC, is listed on a stock exchange. Funds are collected from investors, and the SPAC is merged with a target company in a De‑SPAC process. After completion, the target company becomes the listed entity.
Development of SPACs in Hong Kong
In March 2021, the Hong Kong government instructed the Securities and Futures Commission (SFC) and the Hong Kong Stock Exchange (HKEX) to explore the adoption of a SPAC regime.
The consultation concluded in September 2021, and the HKEX Listing Rules governing SPACs became effective on 1 January 2022.
The Process of a SPAC Transaction in Hong Kong
The process of a SPAC transaction can be broken down in the following steps, taking into account further local requirements in Hong Kong:
Formation of SPAC vehicle
The SPAC vehicle is set up by its founders, usually referred to as the “promoters”. The SPAC is generally set up in the form of a Hong Kong company, limited by shares. The promoters fund the operation of the SPAC and its running costs.
Once the SPAC is formed, the promoters submit a listing application to the HKEX, which is generally less complicated compared to an IPO, since the SPAC is currently not considered as an operational business but a shell company instead.
Promoters hunting for investors
The promoters will then search for investors that are able and willing to invest money in the SPAC process. It may be the case that the targeted company is known at that stage or needs to be chosen in the upcoming months. Under Hong Kong regulations, the investors must comprise of at least 75 professional investors out of which at least 20 must be institutions. Each investor can acquire “units” of the SPAC, whereas one unit usually comprises of one warrant and one common share of the SPAC.
The usual allocations of SPAC shares between the investors and the promoters are an 80:20 ratio. The proceeds that the SPAC receives, as consideration for the shares and warrants, are paid by the investors to an escrow account until the De-SPAC is completed. The minimum amount of capital that must be raised via the investors is 1 billion HKD.
Search for a target company
Once the fund raising is completed, the promoters will start searching for a suitable target company. This process can be compared to a traditional M&A transaction, including several due diligence checks and stages. In Hong Kong, a successor company must meet all new listing requirements of the Main Board, including engaging an IPO sponsor to conduct due diligence, meeting minimum market capitalization requirements and financial eligibility tests.
Once a suitable target is agreed upon between the promoters and the investors, the de-SPAC process begins with a SPAC shareholders’ resolution to merge the SPAC and the target. The announcement for such merger must be made within 24 months after the initial IPO and the merger must be completed within 36 months after the IPO (whereas a six-month extension can be applied for).
De-SPAC process
Merging the target and the SPAC refers to the De-SPAC process. The target company becomes a fully listed company after the successful merger. Following the completion of the merger comes a locked-up period of at least 12 months during which neither the investors nor the promoters are permitted to sell or dispose their shares in the company.
Becoming a part of HKEX
Once the merger is completed, the merged target company is subject to the general listing and reporting rules of the HKEX Main Board. Interested parties should evaluate whether the target company is already prepared and ready to comply with the listing rules before planning the SPAC process. This includes internal and external changes and controls, such as corporate governance, financial reporting, internal control, budgeting, forecasting and investor relations.
Conclusion
The introduction of SPACs reflects Hong Kong’s ambition to remain competitive in global capital markets. While regulatory safeguards are robust, companies considering SPAC listings must carefully assess readiness and compliance requirements.
How Ravenscroft & Schmierer Can Help?
The evolving regime governing SPACs in Hong Kong involves complex regulatory, listing, and transaction considerations. Ravenscroft & Schmierer advises sponsors, investors, and target companies on SPAC structuring, HKEX listing compliance, de‑SPAC transactions, and ongoing regulatory obligations.
If you are considering a SPAC‑related transaction, contact us to discuss your circumstances and available options.
FAQ: SPACs in Hong Kong
What is a SPAC?
A SPAC is a listed shell company formed to raise funds and merge with a target business.
When did SPAC rules take effect in Hong Kong?
The HKEX SPAC listing rules took effect on 1 January 2022.
Who can invest in a Hong Kong SPAC?
Only professional investors may participate, subject to minimum investor requirements.
What is a de‑SPAC transaction?
It is the merger between the SPAC and the target company, resulting in a listed operating business.
How can Ravenscroft & Schmierer assist with SPAC transactions?
Ravenscroft & Schmierer advises on SPAC formation, listing, de‑SPAC execution, and regulatory compliance.
Does Ravenscroft & Schmierer advise on HKEX listing requirements?
Yes. We advise on HKEX Main Board listing rules, sponsor requirements, and disclosure obligations.
Can Ravenscroft & Schmierer advise target companies considering a de‑SPAC?
Yes. We advise target companies on readiness, due diligence, and post‑listing obligations.
Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.
For specific advice about your situation, please contact:
Managing Partner
+852 2388 3899
Comments