SPAC Slowdown Tests Asia’s Fledgling Market for Blank-Check Firms

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So far only five blank-check companies have been listed in Hong Kong or Singapore.

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But as the US SPAC business has lost momentum, global banks and international investors have become more cautious about their participation in these vehicles. And market turmoil caused by the Ukraine war and Federal Reserve interest rate hikes has made it harder for investors to sell new listings.

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SPACs, or special-purpose acquisition companies, are cash shells that first raise funds from public investors and are listed on an exchange, and then seek mergers with private companies.

Nine months after SPAC was granted permission in Singapore, there have been only three such listings. In Hong Kong, where the rules went into effect in January, only two have gone public. Second, Vision Deal HK Acquisition Corporation

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Listed earlier this month.

That’s a far cry from the US, according to data from industry tracker SPACInsider, where around 70 SPACs have listed this year, despite investor appetites being quelled.

“Before the Ukraine war, we were getting calls frequently about a potential new SPAC. Now we are not seeing as many inquiries,” said Arun Balasubramaniam, Hong Kong-based partner at Freshfields Brookhaus Derringer LLP, a law firm filed in the city or made public. Advising seven out of the 12 SPACs visited in various capacities.

The majority of those 12 applicants, all of whom are backed by mainland Chinese or Hong Kong investors, arrived to file in the first three months of 2022 and the majority are still awaiting approval. No new applications have been filed in Hong Kong in the last two and a half months.

Suppressed demand from Chinese investors has helped fill the order book of the Vision deal to some extent. The Vision deal raised the equivalent of $127 million after allocating the majority of the shares to mainland Chinese and Hong Kong investors.

“Many Asian and Chinese investors are very keen to participate in SPAC,” said David Wei, president of Vision Deals and former chief executive of Alibaba.com, “but some were not able to invest in US deals.”

In a sign of that interest, Mr. Wei, who is also the founder of Shanghai-based venture-capital firm Vision Knight Capital, said he held 108 meetings in the virtual roadshow in less than three months while Shanghai was closed.

Mr. Wei and DealGlobe Ltd., a China-focused boutique investment bank and another promoter of Vision Deals, seriously considered launching a SPAC in the US last year.

However, they did not move forward due to the disruption of US-China financial markets and the growing risk from a glut of blank-check companies.

“If we had to launch in the US, the merger would have been blocked by now,” said Mr. Wei, also known by the Chinese name Wei Zhe.

The Securities and Exchange Commission has proposed stricter disclosure requirements for SPACs, after several companies faltered through this route to go public. In the interim, investment banks including Goldman Sachs Group Inc.

and Citigroup Inc.

passed put on hold Underwriting a new SPAC listing in the US

Recent changes in the US market have made investors “a little less excited about the product,” said Magnus Anderson, co-head of Asia-Pacific equity capital markets at Morgan Stanley.,

“It is going to be a high bar to get SPAC done in Hong Kong. I don’t think we’re going to see the frenzy that we saw last year and a year ago in other parts of the world,” he said.

Both Singapore and Hong Kong drew lessons from the US experience and adopted stricter requirements that hold SPAC sponsors and investment banks responsible for the final merger transaction, known as D-SPAC.

Industry experts say there also remain concerns about how deep the pool of capital will prove to be in Asia, especially with tighter requirements on investor type and size.

Hong Kong mandates that at least 20 institutional investors buy into each SPAC IPO and has detailed rules regarding independent investors funding D-SPAC transactions.

Both requirements can pose serious obstacles. The Asia Securities Industry and Financial Markets Association, a trade group, last year urged against requiring SPAC IPO investors, even as there were only 40 active institutional investors in SPAC in the US.

Another challenge can be finding independent investors to infuse fresh capital alongside mergers. “Unless the target is extremely attractive, it will be challenging for most SPAC promoters to find sufficient investor demand for the deal,” said John Baptiste Chan, a Hong Kong-based partner at the law firm King & Wood Mallesons, which advised the trade group. On your response to the SPAC consultation.

In Singapore, no new SPAC applications have been filed since a trio of IPOs in late January, all linked to state investment giant Temasek Holdings.

“We continue to have constructive discussions with potential issuers,” said Mohamed Nasser Ismail, global head of equity capital markets at the Singapore Exchange. Ltd.

Or SGX.

“They are standing on the sidelines, spending their time to settle the markets,” he said.

Another big test will come when Asia’s blank-check vehicles finally meet their merger targets.

“It will be a great achievement if before the end of the year you can make the D-SPAC announcement in both Singapore and Hong Kong. It will provide support to the market,” said Mr. Balasubramaniam of Freshfields.

Jing Yang at [email protected]

Credit: www.Businesshala.com /

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