Hong Kong to allow Spac listings under revamped rules from January 1

Some investment banks and corporate advisors, however, pushed back against the initial proposals, arguing they were too onerous and would make the city uncompetitive

Hong Kong hopes to attract Spac listings from mainland China-based investors after regulatory scrutiny from both Chinese and US regulators caused a sharp slowdown in Chinese listings in the US. EPA

Special purpose acquisition companies will be allowed to list in Hong Kong from January 1, the local stock exchange operator said on Friday, becoming the latest global bourse to tap the desire for such investment vehicles, even as the frenzy from earlier this year wanes.

Hong Kong hopes to attract Spac listings from mainland China-based investors, market participants say, after regulatory scrutiny from both Chinese and US regulators caused a sharp slowdown in Chinese listings in the US.

Friday's statement from Hong Kong Exchanges and Clearing also set out several adjustments to its initial proposals for a Spac regime which it published in a consultation document earlier this year.

Some investment banks and corporate advisors had pushed back against the initial proposals, arguing they were too onerous and would make the city uncompetitive.

"The changes should be positive. The exchange has taken consideration of the market and made this regime quite commercial and practical now," one Hong Kong capital markets banker said.

"It won't be like the US but we expect to see decent interest," he added.

Tweaks to the rules included lowering a requirement that a Spac's securities must be distributed to a minimum of 30 institutional professional investors to 20, and adjusting rules that had placed restrictions on the circumstances in which investors could redeem their shares in a Spac.

However, even the initial proposals went too far for some. "Spacs are unsuitable for a market such as Hong Kong which has historically suffered from manipulation of shell stocks," the Asian Corporate Governance Association said in its response to HKEX's initial proposals.

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Spacs are unsuitable for a market such as Hong Kong which has historically suffered from manipulation of shell stocks
Asian Corporate Governance Association

Spacs are shell corporations that list on stock exchanges and then merge with an existing company to take it public, typically offering strong valuations and shorter listing time frames than initial public offerings.

They surged in popularity in the US around a year ago, but the pace of capital raising has since slowed as investors were spooked by many Spacs' poor financial performance and a regulatory crackdown led by the US Securities and Exchange Commission.

Several companies are preparing to list Spacs on the Singapore Exchange, which also changed its rules earlier this year.

Updated: December 17th 2021, 1:20 PM