SPAC finds valuable investment opportunities for IPO

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SWCS Corporate Services Group (Hong Kong) Limited, a supplier, committed to providing professional corporate services, welcomes the development of SPAC (Special Purpose Acquisition Company) in the Hong Kong financial market. 

SWCS Group is always concerned about the development of the financial industry. The SPAC, which set off a boom in the United States last year, appeared in the United States as early as 2003. Last year, because the global economic market was hit by the pandemic, many governments, including the U.S. government, entered the market to save the national economy. Funds have flowed into the stock market, prompting many companies that follow traditional IPOs to consider becoming listed companies by acquiring SPAC listed companies. According to data from the research company SPAC Research, a total of 248 U.S. stock IPOs in 2020 are SPACs, accounting for 56% of the U.S. stock IPO market, and the number of funds raised will reach approximately US$82 billion (HK$639.6 billion).

The listing process of SPAC is relatively fast and straightforward compared with traditional listing procedures, but it is also subject to general listed company compliance and governance requirements. Since the SPAC listed company owns investor funds, it was a cash company before acquisition. Therefore, to protect investors, it is necessary to deposit the cash in a trust until the acquisition of the target company is voted by shareholders.

Singapore is expected to launch SPAC this year

In addition to the US, the United Kingdom, after the Brexit procedure, to maintain its position as a financial center in Europe, has recently been reported to relax rules to attract SPACs in London. Earlier this month, the Securities Regulatory Commission and the Hong Kong Stock Exchange introduced SPAC as a new investment tool to the Financial Leadership Committee. The Financial Secretary, Mr. Paul Chan Mo-po, also said that he would actively study and launch it. Hong Kong’s competitor, Singapore, is more active than Hong Kong in terms of financial openness. Singapore Exchange had conducted a consultation on SPAC as early as January 1, 2010, and its CEO Mr. Loh Boon Chye, even expressed publicly last month that hopefully SPAC could be officially launched within this year.

Regarding the research on the launch of SPAC in Hong Kong, Dr. Maurice Ngai, director, and group chief executive officer of SWCS Corporate Services Group (Hong Kong) Limited, pointed out the necessity to find valuable investment opportunities. The reasons are the continuous low market interest rate and abundant market liquidity in Hong Kong. While SPAC is first raising funds and then acquiring, doing this will trigger the equivalent of allowing private companies to use it as a “backdoor listing.” Whether Is it contrary to the current SFC and the Stock Exchange’s anti-takeover (RTO) or “backdoor listing” to crack down on shell-making behaviour? It is necessary to find a reasonable balance between investor protection and financial development, to make SPAC truly an alternative to the traditional form of private equity.

According to the U.S., when applying for listing, SPAC listing regulations must also establish a professional management team composed of private equity, mergers and acquisitions, and a specific sector. Moreover, unsuccessful acquisitions can redeem capital, which significantly reduces investment risks and strengthens investment protection. The investment market can bring one more choice to the current corporate IPO financing, which can be a win-win situation.

From the perspective of innovative financial investment tools and the development of the IPO listing market, the appearances of more innovative investment tools are positive in the Hong Kong financial market. However, as a professional corporate service provider, it is our responsibility to remind all walks of life when considering the implementation of SPACs.

To prevent SPAC from being chased excessively or creating a bubble, Dr. Ngai suggested the fact needs to refer. Since 2018, the Securities Regulatory Commission began to tighten IPO rules and reverse takeover rules in an attempt to curb “shelling” and “backdooring” “Listing.

At the same time, in the second half of 2019, the Stock Exchange made further amendments to the rules for backdoor listings, including revising the definition of reverse takeover transactions. It also tightens the compliance requirements for reverse takeovers and extreme transactions and adjusting listed issuers Continuing listing criteria, etc., so as not to affect the supervision of Hong Kong’s financial market.

Dr. Ngai reiterated that Singapore has always been a competitor of Hong Kong. In addition to the accelerated implementation of SPAC, Singapore also has a flexible investment structure of Variable Capital Company and Limited Partnerships Act like Hong Kong’s LPF (Limited Partnership Fund System). Therefore, in addition to keeping up with the pace, relevant departments and agencies must also balance compliance, supervision, and risk assessment.

For more service information about SPAC and the limited partnership fund system (LPF), please feel free to contact the professional team of SWCS Corporate Services Group (Hong Kong) Limited.

Tel:3918 0800| |