HKEx's first SPAC debuted, Chinese securities firms seized the opportunity

Industry insiders believe that the Hong Kong Stock Exchange will compete for SPAC opportunities in Hong Kong, mainland China and the Asia-Pacific region, and licensed Chinese-funded securities firms with larger overseas assets will be the first to benefit.

The first SPAC (special purpose acquisition company) prospectus application on the Hong Kong Stock Exchange is coming. On January 17, the Hong Kong Stock Exchange disclosed that Aquila Acquisition Corporation, the first SPAC company to submit a prospectus application version, was jointly sponsored by Morgan Stanley and CMB International, and planned to focus on companies in the new economy field for mergers and acquisitions.

On January 18, stimulated by the above news, Hong Kong stocks and Chinese securities companies generally rose, Huaxing Capital Holdings rose 3.18%, GF Securities rose 2.76%, China Securities Construction Investment rose 2.08%, CICC rose 1.91%, and CITIC Securities rose 1.63 %, China Galaxy rose 1.56%, Haitong Securities and China Merchants Securities rose 1.14% and 1.06% respectively.

HKEx quickly landed SPAC

On January 17, the Hong Kong Stock Exchange ushered in the first SPAC application after the implementation of the SPAC system, from Aquila Acquisition Corporation (AAC), a company jointly sponsored by Morgan Stanley and CMB International.

The so-called SPAC (Special Purpose Acquisition Company) is a special purpose acquisition company. This type of company has only cash and no other business. Prospective non-listed company business, in order to achieve the latter's financing and listing.

Chen Fu, chief non-bank analyst at GF Securities, said that the SPAC listing model has been implemented in many countries and regions around the world. According to statistics from S&P Global, the scale of SPAC financing has grown rapidly since the second quarter of 2020, and the top three in 2020 and 2021. The quarters accounted for 8.4% and 15.6% of the global IPO fundraising scale in the same period, respectively.

Among them, the United States is the main concentration of SPAC listings. According to the statistics of SPAC Analytics, from January to November in 2020 and 2021, the fundraising scale of SPAC listed in the United States will reach 83 billion US dollars and 160 billion US dollars respectively, accounting for nearly 50% of the current total IPO in the United States. Half. Among Asian countries, South Korea, Malaysia, Singapore, etc. have all implemented the SPAC listing mechanism, but they are not active. In Europe, only 17 SPACs were listed in the first half of 2021, including the UK.

"Compared with traditional IPOs, the advantages of SPAC listing methods are nothing more than fast speed, low threshold, and low costs." Yang Boguang, chief economist of Dongguan Securities, told the Securities Times reporter that especially during the epidemic period of the past two years, companies have made profits. Capacity is affected, and faster and cheaper financing channels are favored. At the same time, the Federal Reserve implemented quantitative easing, and the released liquidity poured into the capital market, and some "small and beautiful" companies acquired by SPAC just met this shareholder trend.

In September 2021, the Hong Kong Stock Exchange also consulted outsiders and announced in December 2021 that the SPAC listing mechanism will be officially implemented from January 1, 2022.

Chen Fu said that compared with the U.S. mechanism, the SPAC consultation document of the Hong Kong Stock Exchange is more cautious about the initiation and investment of SPACs, including the qualification requirements for SPAC promoters and investors, the limited fundraising scale and the minimum shareholding ratio of SPAC promoters, etc. . However, in contrast to SGX, HKEX does not restrict the eligibility of SPAC M&A targets.

In public, Ou Guansheng, CEO of HKEX Group, also said that the addition of a SPAC listing mechanism by HKEX will further consolidate Hong Kong's status as the world's leading international financial center. "We hope that through the introduction of the SPAC listing mechanism, experienced and reputable SPAC sponsors will be allowed to identify emerging and innovative industry companies as M&A targets, and support some promising new stars to thrive." Ou Guansheng said.

Chen Fu believes that from the perspective of the Asia-Pacific region, the Hong Kong Stock Exchange is highly active in trading, and is expected to strive for SPAC opportunities in Hong Kong, China and the Asia-Pacific region. From 2019 to the end of the third quarter of 2021, among the SPAC projects listed in the United States, there are about 39 registered in Asia, most of which are registered in Hong Kong and mainland China. Companies whose target entities are located in Greater China.

The spring breeze is warm again in Hong Kong brokerages

Industry insiders believe that the unique geographical advantage of the Hong Kong Stock Exchange, coupled with the newly launched SPAC system, will make the companies in the Asia-Pacific region more attractive for listing.

Yang Boguang analyzed that as far as the Hong Kong Stock Exchange is concerned, on the one hand, facing the international financial center, international capital flows are more convenient, and Hong Kong, as an offshore RMB settlement center, can better serve mainland Chinese enterprises going overseas; on the other hand, Hong Kong stocks The interconnection mechanism with A-shares makes it closely linked with the mainland market and has advantages unmatched by other overseas exchanges.

Due to the advantages of the SPAC listing system in terms of time and cost, and fewer exchanges allow listing in this model, the introduction of the SPAC system will help enhance the attractiveness of the Hong Kong Stock Exchange. "At the same time, the United States has tightened its supervision on the listing and auditing of Chinese concept stocks, which will, to a certain extent, prompt Chinese mainland companies going overseas to change their listing destinations, adding momentum to the return of Chinese concept stocks," said Yang Boguang.

The implementation of the SPAC system on the Hong Kong Stock Exchange will bring business opportunities to Chinese securities companies?

Yang Boguang said that as far as the SPAC system is concerned, the business opportunities for Chinese securities companies mainly come from their investment banking and asset management businesses in Hong Kong.

In stages, the industry may form a competitive gap based on the talent pool of various securities firms overseas and their own brand effects. First, according to the minimum requirement of HK$1 billion for SPAC financing, securities firms with large overseas assets and licenses to operate in Hong Kong will benefit first. Secondly, securities firms that participate in more overseas investment and financing businesses, have strong research capabilities at home and abroad, and have strong pricing power (both domestic and overseas) for companies that implement SPAC-IPO will have more prominent advantages.

According to Wind data, a total of 97 Hong Kong stock IPOs will be issued in 2021, and the number has declined for three consecutive years, including 96 IPOs on the main board and 1 IPO on the ChiNext. The IPO of 97 companies successfully raised HK$328.8 billion, a year-on-year decrease of 17.29%. Judging from the ranking of Hong Kong stock IPO sponsors, in the face of competition from foreign international investment banks, Chinese securities companies are also catching up, and they are on a par with foreign international investment banks in the top ten IPOs.

Among them, CICC participated in 31 IPOs as a sponsor, ranking first, accounting for nearly 32% of the total number of IPOs last year; Goldman Sachs and Morgan Stanley served as sponsors for 21 and 13 IPOs, respectively, ranking first. Second and third; the top ten Chinese securities firms also include CITIC Lyon, Haitong International, CCB International and Huatai Financial (Hong Kong), with 6 or more sponsorships. From the perspective of Hong Kong stock IPO underwriters, the underwriting strength of foreign securities firms in the Hong Kong stock market is still not to be underestimated, with six of the top ten.

Among them, Goldman Sachs topped the underwriting list with a total underwriting amount of HK$50.9 billion, followed by CICC (Hong Kong) with HK$41.1 billion, and Merrill Lynch ranked third with HK$31 billion.

In addition, brokerages with an underwriting scale of more than HK$10 billion also include Morgan Stanley, CLSA, Haitong International, JPMorgan Chase, Huaxing Securities and UBS Securities, while the top five brokerages have a combined underwriting scale of 54%.