A review of the SPAC listing regime in Hong Kong

In December 2021, the Hong Kong Stock Exchange announced new rules to accommodate listings of Special Purpose Acquisition Companies (“SPACs”) after witnessing the growth of SPAC listings in the US. A SPAC, as defined in the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, refers to “an issuer that has no operating business and is established for the sole purpose of conducting a transaction in respect of an acquisition of, or a business combination with, a target, within a pre-defined time period, to achieve the listing of the target”. A SPAC is often known as a blank check company. The SPAC listing regime in Hong Kong came into effect on 1 January 2022.

In general, the Hong Kong Stock Exchange only allows professional investors (as defined in section 1 of Part 1 of Schedule 1 to the SFO) to invest in SPACs. A SPAC is required to raise IPO funds of at least HK$1 billion which must be held in a ring-fenced escrow account in Hong Kong operated by a trustee or custodian. The minimum board lot size and subscription amount will be HK$1 million. At listing and on an ongoing basis, at least one SPAC promoter must be licensed for regulated activity Type 6 (advising on corporate finance) and/or Type 9 (asset management) under the SFO and must hold at least 10% of the promoter shares. The Hong Kong Stock Exchange also requires the SPAC board to include at least two Type 6 or Type 9 licensed individuals (including one director representing the licensed SPAC promoter). Further, a SPAC must meet all other open market requirements applicable to a new listing, including the 25% public float requirements.

Hong Kong had its first SPAC IPO in March 2022, and the Hong Kong Stock Exchange is reviewing a further 10 SPAC applications for listing filed between January and March 2022. It is believed that Hong Kong will attract prospective SPAC issuers as it offers a platform for the SPAC issuers to hunt for acquisition targets in mainland China.

Private equities and companies looking to acquire targets in mainland China with a SPAC are advised to consider whether its SPAC may be eligible to be listed on the Hong Kong Stock Exchange when considering its listing venue.

7 April 2022
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