The SPAC listing mechanism is officially "settled" in the Hong Kong Stock Exchange

The long-awaited SPAC (Special Purpose Acquisition Company) officially "settled" Hong Kong, China today.

On January 1, 2022, the Hong Kong Stock Exchange, a wholly-owned subsidiary of the Hong Kong Stock Exchange, introduced new rules and established a new SPAC listing mechanism, which will take effect on that day. This is also another capital market that introduces the SPAC listing mechanism after the capital markets of the United States and Singapore.

Hong Kong Stock Exchange introduces SPAC listing mechanism

From 2020 to 2021, the SPAC boom drives the recovery of U.S. stock IPOs. "Securities Daily" reporters checked SPACInsider data and found that in 2020, a total of 248 SPACs will be listed on the U.S. capital market, with a total of 83.335 billion U.S. dollars raised, surpassing the traditional IPO listing model for the first time. In 2021, the number of US SPAC IPOs reached 613, with a total fundraising amount of 162.394 billion U.S. dollars.

Under the above background, the Hong Kong Stock Exchange has accelerated the introduction of the SPAC listing mechanism since 2021, and it was officially launched in less than a year.

In response, Ou Guansheng, Chief Executive Officer of the Hong Kong Stock Exchange Group, said: “The Hong Kong Stock Exchange is committed to enhancing the attractiveness, competitiveness and diversification of the Hong Kong market in the world. The addition of the SPAC listing mechanism can further consolidate Hong Kong as a world-leading international The status of a financial center. 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 support some promising corporate stars to thrive and succeed."

On September 17, 2021, the Stock Exchange issued a consultation document to solicit market opinions on the implementation of the SPAC listing mechanism in Hong Kong, China; on December 17, 2021, the Stock Exchange officially issued the listing mechanism rules. Compared with the consultation document, there are more Aspect changes.

Chen Li, chief economist and director of the research institute of Chuancai Securities, said in an interview with a reporter from the Securities Daily: “The latest SPAC regulations, the number of professional investors in SPAC institutions, the requirements of SPAC directors, voting rights and share redemption The requirements for rights bundling, mandatory independent PIPE investment, and warrant dilution ceilings are slightly relaxed, but some regulatory requirements are still stricter than Singapore and the United States. On the whole, SPAC provides companies with a simpler and faster way to go public , It is more attractive to small and medium-sized companies with high-growth market capitalization. From the perspective of medium and long-term development prospects, after the implementation of the SPAC mechanism, it is expected to increase the IPO activities of Hong Kong stocks and optimize the liquidity environment of the Hong Kong stock market. "The introduction of the SPAC listing mechanism will What development opportunities does the Hong Kong stock market bring? The non-bank team of CITIC Securities stated: "The SPAC listing mechanism complements traditional IPOs, competing for high-quality listing resources, and further consolidating the main battlefield positioning of the new economy. The Hong Kong Stock Exchange's determination to attract more high-quality assets and strengthen its own new economic agglomeration effect is obvious to all. The traditional IPO supplemented by the SPAC system will increase the channels and flexibility of potential target financing, which is expected to attract more new economic increments to enter the Hong Kong stock market and accelerate the creation of the main battlefield for new economic investment."

Wang Hanfeng, chief strategist of CICC, said: “By introducing the SPAC system, the Hong Kong Stock Exchange hopes to attract managers and investors with experience in Greater China to initiate SPACs in Hong Kong, China, thereby driving more investors to participate in Hong Kong stock investment. Hong Kong is expected to become a bridgehead for investment in China's new economy. More high-quality companies going public in Hong Kong will increase its position as an offshore Chinese asset and RMB wealth management center."

Chen Li told reporters: "Hong Kong stocks are still the preferred market for the return of Chinese concept stocks. With the strengthening of the return of Chinese concept stocks and the implementation of the SPAC system, it is expected that the Hong Kong stock IPO market will usher in a new growth point in 2022."

Brokers with more business in Hong Kong will benefit

In recent years, SPAC has been popular among investors in the US capital market, and well-known investment banks such as Goldman Sachs, Morgan Stanley, JP Morgan Chase and Deutsche Bank have paid more and more attention to this business.

"Securities Daily" reporters checked SPACResearch data and found that in 2021, about 122 investment banks will "share" the US stock SPAC market, an increase of more than 50 compared to 2020. The top three underwriters participating in odd numbers are Goldman Sachs, JPMorgan Chase, and Citigroup, with 52, 49 and 45 orders respectively.

As the proportion of direct financing continues to increase and the listing model in the international market continues to innovate, domestic investment banks may benefit from the SPAC business. Chen Li told reporters: "The introduction of the SPAC listing mechanism by the Hong Kong Stock Exchange this time will benefit securities firms with more business in Hong Kong, such as China International Capital Corporation, Haitong Securities, CITIC Securities, and Huatai Securities."

Wang Yifeng, chief analyst of the financial industry of Everbright Securities, believes: "The SPAC listing mechanism means that through financial innovation, the value mining and creation capabilities of issuers and investors can be fully utilized, and the market value of the company's stock can be more fully reflected. The promotion and practice of SPAC by the Hong Kong Stock Exchange is conducive to supporting the financing needs of innovative and growing technology companies, and it is also conducive to the construction of China's multi-level capital market."

How likely is the introduction of the SPAC listing mechanism into the A-share market? China Development Bank Securities analyst Wang Wen predicts: "It is unlikely that the A-share market will introduce the SPAC model in the short term. There are four main reasons: First, the Beijing Stock Exchange, as the main position of service-innovative SMEs, will be positioned in the short-term. Will not change; second, the registration system has yet to be implemented in the entire market; third, the SPAC model conflicts with the existing listing rules, and the amendments to the regulations and systems are not an overnight effort; fourth, the domestic investor education needs to be strengthened, and the SPAC model is rashly introduced. The concept of protecting investors’ rights and interests is contradictory. However, from the perspective of medium and long-term development prospects, the introduction of the SPAC model is quite possible."