SPACs underwhelm in Hong Kong and Singapore in first year, as listings lapse and applications peter out

  • After an initial flurry, applications for special-purpose acquisition companies have dried up in both Hong Kong and Singapore
  • Experts nonetheless expect the mechanism to play a role over time as broader market conditions improve and successful SPACs raise confidence

Special-purpose acquisition companies (SPACs) have received a cooler than expected response in both Hong Kong and Singapore, with some launches from early in the year fizzling and few new applications emerging in recent months.

Hong Kong, where SPACs launched in December 2021, has seen no new filings in the past two-and-a-half months. The most recent prospectus, that of TechStar Acquisition, was filed on June 24, according to the Hong Kong stock exchange website. Previously, the market saw four applications in January, four in February, two in March, one in April and none in May.

In Singapore, no new SPACs have appeared since three such listings emerged in January, after the SPAC listing regime took effect in September 2021.

SPACs are shell companies created to raise financial war chests and buy assets within a limited period of time, usually 18 months to 24 months.

Neither Hong Kong nor Singapore has seen a successful de-SPAC – when the selected company merges with the listed SPAC – this year.

“The start of the SPAC launch [in Asia] was not bright,” said Jason Wong, CEO of Norwich Capital, one of the earliest SPAC promoters in Hong Kong. “At the beginning of this year, almost every week there were bankers turning to me saying that they wanted to do SPACs. But now it’s been quiet for months.”

Both the SPAC market and the traditional initial public offering (IPO) market have been suppressed this year amid high inflation, rising interest rates, and geopolitical uncertainties that have hammered investor sentiment.

In addition, the strict listing thresholds put in place for SPACs in both Hong Kong and Singapore – more stringent than those in the United States, which saw valuation bubbles of some SPACs burst after a peak in 2020 and 2021 – also hurt the momentum, experts said.

In Hong Kong, every SPAC board needs at least two members who are licensed by Hong Kong’s Securities and Futures Commission (SFC), and only professionals with at least HK$8 million in assets are allowed to transact in these blank-cheque companies. The Singapore Exchange (SGX) reviews the track record and reputation of a SPAC’s sponsor and its management team in assessing the suitability for listing.

“The rules are too strict, especially in Hong Kong, which made it more difficult for sponsors to raise funds,” said Wong. Promoters are also waiting for less volatility in the broader market to achieve better pricing for their deals, he said.

In Hong Kong, for example, all three existing SPACs – Aquila Acquisition, Vision Deal HK Acquisition Group and HK Acquisition Corp – raised only HK$1 billion (US$127.4 million), the minimum threshold for a SPAC IPO in the city. Their post-listing performance was also sluggish, having declined 4 to 9 per cent as of Friday.

Hong Kong has seen 13 SPAC applications since the launch of the regime in December last year. Of those, three have listed and five have lapsed, according to Irene Chu, head of new economy and life science, Hong Kong, at KPMG China.

“I don’t expect to see a lot of new applications for the remainder of this year as we still need to see the current active applicants come through the listing process,” she said.

Norwich Capital’s Wong, meanwhile, predicted that Hong Kong at most will have another three to four SPAC listings through the remainder of this year.

The market is also waiting for more progress in the de-SPAC process, which will enhance confidence and attract more players to launch new deals, analysts said.

The three SPACs listed in Singapore are in the process of engaging and discussing with potential acquisition targets or in the midst of the de-SPAC process, according to Mohamed Nasser Ismail, global head of equity capital markets at SGX Group.

“We have three SPACs that [are] all listed, and the sponsors of these SPACs are in various discussions on potential targets or de-SPAC deals,” he said.

Experts in both Singapore and Hong Kong believe SPACs will play a role in Asia over the longer term.

“SPACs are here to stay,” said Nasser. “It is an alternative avenue for companies to bring certain types of companies into the market, and for investors to take comfort from promoters with experience and a track record of value creation to help these companies scale and grow.”

“Once we have seen successful completion of de-SPAC transactions, and market and macroeconomic conditions have improved, we should see more sustained interest in SPAC listings in the coming years,” said KPMG’s Chu.

Author: Iris Ouyang, SCMP

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