The Hong Kong Stock Exchange strives to promote a new thoroughfare under the SPAC mechanism for overseas listing filing system?

At the beginning of the new year, a major reform of the Hong Kong Stock Exchange’s listing system was announced. On January 1, the Hong Kong Stock Exchange introduced new rules and established a new SPAC listing mechanism, which will take effect from that day. The Hong Kong Stock Exchange has also become another capital market that introduces the SPAC listing mechanism after the capital markets of the United States and Singapore.

Earlier, at the end of 2021, the China Securities Regulatory Commission also announced the "Administrative Measures for Overseas Securities Issuance and Listing Filing of Domestic Enterprises (Draft for Comment)" (referred to as the "Administrative Measures"), which clarified the management of overseas securities issuance and listing of domestic enterprises. The scope of application, filing procedures and other content.

"The "Administrative Measures" began to solicit opinions and gave the market clear expectations. Before, basically all companies were watching, and overseas listings were in a state of stagnation. Now, although the rules and specific filing procedures need to be run-in, at least the companies that meet the conditions are told to start Listing." Some brokerage investment bankers engaged in overseas business said that the SPAC listing system of the Hong Kong Stock Exchange was implemented on the first day of the new year, and the listing of Chinese concept stocks in the US stock market was subject to the "Foreign Company Accountability Act", which was officially released in the "Administrative Measures" And after a short-term run-in, the Hong Kong stock market is expected to usher in more domestic companies going public.

Clear expectations for overseas listing of domestic companies

"The direction of the country's expansion of capital market opening to the outside world will not change, and the attitude of supporting companies to list overseas in compliance with laws and regulations and using the two resources well will not change. The purpose of regulation is to promote development." The "Management Measures" began to solicit opinions Later, with regard to overseas listing of domestic enterprises, the spokesperson of the China Securities Regulatory Commission said in an interview with reporters.

According to the "Administrative Measures", the overseas listing of China concept stocks will be fully incorporated into the regulatory system. In the future, domestic companies will need to perform filing procedures for direct or indirect overseas issuances and listings, and China concept stocks that involve equity financing overseas must be filed. program. What's more noteworthy is that in the future, if the competent authorities of a specific industry field clearly require companies to perform regulatory procedures before listing overseas, the companies should obtain regulatory opinions, filing or approval documents issued by the competent authorities before submitting their filing applications. For example, according to the "Measures for the Implementation of Administrative Licensing Matters for Chinese-funded Commercial Banks" and other provisions, Chinese-funded commercial banks must perform the approval procedures of the banking authorities before they are listed overseas.

In addition, for companies involved in foreign investment security reviews, network security reviews and other laws and regulations that are listed overseas, the companies should also apply for security reviews in accordance with the law before submitting their filing applications.

While the system has given domestic enterprises clear expectations for overseas listing, the release of the "Administrative Measures" has also been interpreted by many market participants as a positive for the Hong Kong stock market.

In fact, under the influence of the adjustment of industrial policies and the strengthening of industry supervision in 2021, the distribution of IPO activities in the Hong Kong stock market that year was very uneven. According to Wind statistics, there were 97 companies listed in Hong Kong throughout the year, a year-on-year decrease of more than 30% compared to 2020. Among them, 31 companies went public from August to December, and only 3 and 4 companies completed the listing in August and September respectively.

"At that time, because of the increasing uncertainty of overseas listing, many companies chose to slow down. We also suggested to companies in this way. Now the regulatory authorities have clarified the expectations for overseas listing through the "Administrative Measures", and some projects that are already in the queue can be moved. Get up." The above-mentioned brokerage investment bank person said. At present, according to the transitional period arrangement, the management of overseas listing records will start with increments, and the record-keeping procedures will be performed as required for incremental companies and stock companies that have undergone refinancing and other activities.

Liu Xinqi, chief analyst of the non-bank financial industry of Guotai Junan, said that mainland enterprises will choose to list in Hong Kong more under the new "Administrative Measures." Considering that China and the United States currently need to deepen cooperation on specific financial regulatory matters such as the listing of Chinese concept stocks, in contrast, mainland companies choosing to list in Hong Kong are basically not affected by the uncertainty of regulatory cooperation, and it is expected that it will be easier to pass relevant approvals and perform filing procedures .

Pang Ming, chief economist and chief strategy analyst of Huaxing Securities (Hong Kong), also believes that under the new regulations for overseas listing and information security, the consumer, medical and health industries, Internet and information service industries in the Mainland are under market segments. Companies with strong leadership, less sensitive data retained, mainly built by non-RMB funds, and core teams that are more competitive for foreign investors, still have the need to go overseas, especially in Hong Kong for listing.

"Compared with the A-share market, considering the needs of overseas financing, investor base, industry regulation, the ease of listing of red chips and VIE structures, and the continuous innovation of the Hong Kong stock market, it is expected that companies planning to go public and those considering returning to the U.S. At this stage, the preferred listing place for Chinese concept stocks will still be Hong Kong stocks." Pang Ming said.

The SPAC mechanism is difficult to see results in the short term

While the Securities Regulatory Commission is soliciting opinions on the "Administrative Measures," the Hong Kong Stock Exchange is also promptly promoting the implementation of the SPAC listing mechanism. On January 1, the Hong Kong Stock Exchange introduced new rules and established a new SPAC listing mechanism, which will take effect from that day.

"We hope that through the introduction of the SPAC listing mechanism, it will allow experienced and reputable SPACs to initiate emerging and innovative industry companies as M&A targets, and foster some promising corporate stars to thrive and achieve success." Hong Kong Stock Exchange Group Administration President Ou Guansheng previously stated publicly.

The so-called SPAC (Special Purpose Acquisition Company) refers to a special purpose acquisition company, which is a "shell company" formed by raising funds from mutual funds, hedge funds, etc., with only cash and no other business. The sole purpose of its establishment is to use the raised funds to acquire the business of a non-listed company with development prospects within a preset period of time after listing, so as to realize the financing and listing of the latter.

Due to its short listing time, low cost, and limited information disclosure, SPAC has become an important means for major exchanges around the world to attract innovative companies in recent years. At present, the US and Singapore markets have entered the SAPC mechanism, and the London Stock Exchange and Tokyo Stock Exchange have also Put the promotion of the implementation of the SPAC mechanism into the agenda.

“Mainly because the listing of SPACs is flexible, and theoretically, traditional IPO supervision is avoided.” As for the reasons why SPACs have become so popular in recent years, Pang Ming explained that in recent years, due to the Fed’s loose monetary policy, the market has been High-tech companies have high premium valuations and rapid listing requirements. The number of companies listed through SPACs, which require short time, low cost, and limited information disclosure, has increased sharply.

And compared to the same faster backdoor listing, Pang Ming believes that SPAC’s corporate structure is "cleaner" and there is no potential legal compliance risk. Moreover, because it may have potential M&A targets and listing characteristics, and usually the management also has considerable industry contacts and professional strength, the valuation of SPAC M&A is often higher than that of private equity investment. Many institutional investors have already subscribed when the SPAC "shell" is listed. Its stocks and will pay close attention to the entities selected by SPAC for mergers and acquisitions, so financing is relatively certain.

A relevant person in charge of equity investment institutions in Beijing pointed out that the implementation of the Hong Kong stock SPAC mechanism coincides with the domestic "Administrative Measures" soliciting opinions, and overseas listing expectations have become clearer, which has formed a certain degree of attraction for some technologically innovative enterprises. "Many innovative companies, especially biopharmaceutical companies, need a lot of financing before they go public, and the founder's equity itself has been more diluted.

After the traditional listing through the Pre-IPO round, or the green shoe mechanism, the shares are further diluted, which the founders and early investors are unwilling to see. There is no such problem in listing through SPAC, and private placement can also be started after listing. "Although the SPAC mechanism provides new opportunities for domestic companies to list in Hong Kong, market participants said in interviews that companies should still choose traditional listing methods in the short term.

“The spirit of the CSRC’s documents is to include supervision of various situations in which overseas securities are issued or listed, and domestic corporate assets are injected into overseas listed companies. This scope is wide and there are no regulatory omissions, covering stocks, bonds, secondary listings, dual listings, Introduce listings, SPACs, etc.," said an investment banker. The "Administrative Measures" clearly stated that for overseas listings, backdoor listings, special purpose mergers and acquisitions company (SPAC) listings and other methods to achieve overseas listing, the filing procedures shall be performed in accordance with the initial public offering and listing requirements.

In fact, compared with the current SPAC mechanism in the US market. The SPAC consultation document of the Hong Kong Stock Exchange better balances the relationship between the requirements for expanding new business and protecting the interests of investors. For example, SPAC securities will only be subscribed and traded by professional investors. Hold at least 10% of the promoter’s shares, the successor company must meet all new listing requirements including minimum market value requirements and financial qualification tests, independent third-party investments must account for at least 15% to 25% of the successor company’s expected market value, and so on.

"In this case, it is better to go to the normal listing of SPACs. In the initial stage, the mainland authorities are strictly censored, and there is no time advantage. The Hong Kong Stock Exchange's review of the first batch of SPACs is estimated to be a learning by doing, and it is not as good as a normal listing." Investment bankers said.