Is the SPAC Hong Kong Listing Boom Coming? A Comprehensive Analysis of Opportunities and Challenges

As an emerging listing pathway, SPAC provides startups and investors with a more flexible and efficient financing and investment opportunity. In recent years, it has created a wave of enthusiasm in the U.S. capital markets. As an international financial center, Hong Kong's Stock Exchange is actively promoting the SPAC listing system to attract more companies to list in Hong Kong, further strengthening Hong Kong's position as a global financial hub. This article provides a comprehensive analysis of the development status, potential opportunities, and challenges of the SPAC listing system in Hong Kong, and explores its IPO market prospects.

1. Analysis of SPAC Concept and Operation Model

1.1 Definition and Characteristics of SPAC

A SPAC is a shell company initiated by seasoned investors or management teams. It raises capital through a public market offering, using the proceeds to acquire a private company within a specified timeframe, thereby allowing that company to indirectly gain listing status.

Compared to traditional IPOs, SPAC characteristics are mainly reflected in:

• (1) Simpler listing process and faster listing time (taking the U.S. market as an example, SPAC listing can typically be completed in 3-6 months)
• (2) Lower costs (SPAC sponsors will bear the sponsorship and underwriting fees)
• (3) Higher certainty and success rate for listing, with valuation prices less affected by the public market
• (4) More ample funding, as funds raised through the SPAC listing are placed in escrow and invested into the target company's operations

1.2 Hong Kong SPAC Listing and Merger Integration Process

(1) Establishing the SPAC: A seasoned management team initiates and establishes the SPAC, applying for listing on the Hong Kong Stock Exchange.

(2) SPAC Listing and Fundraising: The SPAC raises capital by issuing shares to investors, which will be used for future acquisition of a target company.

(3) Searching for Acquisition Targets: After listing, the SPAC has a certain period to find a suitable acquisition target. Once identified, the SPAC negotiates and reaches an acquisition agreement with the target company.

(4) Shareholder Vote: The SPAC's shareholders vote on the acquisition agreement. If approved by a majority of shareholders, the acquisition is approved.

(5) Completing the Acquisition: The SPAC uses the raised funds to complete the acquisition and merges the target company into the SPAC, making the target company a listed entity.

(6) Operation of the Listed Company: After the merger is completed, the listed company officially begins operations and is responsible for fulfilling the obligations and responsibilities of a listed company.

1.3 Differences Between SPAC and Traditional IPO

The difference between SPAC and a traditional IPO is that a SPAC listing involves having a listed company first, followed by acquiring a business. The purpose of establishing a SPAC is to acquire a promising but unlisted "target company" through a business merger (De-SPAC), thereby enabling that private company to achieve a rapid listing. Compared to traditional IPOs, the advantages of a SPAC IPO lie in its simpler listing process, shorter time consumption, lower costs, and more flexible transaction structure design.

1.4 Development History of the SPAC Listing Mechanism in the U.S. Market

The SPAC listing mechanism has a long history. The first SPAC company was listed in the U.S. in 1997. By 2020, this number had surged to 248, creating a wave of enthusiasm in the U.S. financial market.

Hong Kong officially launched its SPAC listing mechanism in January 2022, becoming the fourth Asia-Pacific capital market to introduce the SPAC mechanism, following South Korea, Malaysia, and Singapore.

2. Background and Considerations for Hong Kong's Introduction of the SPAC Listing System

2.1 Attracting New Economy Companies to List in Hong Kong

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2.2 Enhancing Hong Kong's Status as an International Financial Center

The Hong Kong SPAC IPO mechanism can attract more companies to list in Hong Kong, garnering more capital attention, thereby enhancing Hong Kong's status as an international financial center.

2.3 Main Features of Hong Kong's SPAC System

Compared to Singapore and the U.S., Hong Kong's SPAC mechanism imposes higher requirements in areas such as investor eligibility, sponsor qualifications, and listing scale. This highlights the Hong Kong regulators' focus on investor protection and also demonstrates their pursuit of high-quality SPAC merger listings.

2.4 Industry Views on Hong Kong's SPAC Listing System

The industry generally believes that SPAC is a supplementary option to traditional listing methods, providing issuers with a new choice in volatile market environments and helping the Hong Kong market and the Stock Exchange maintain comprehensive competitive advantages.

3. Development Status and Challenges of SPAC in Hong Kong

3.1 Hong Kong SPAC Listing Statistics

Since the implementation of SPAC in Hong Kong, a total of 5 companies have completed SPAC listings, all of which were completed in 2022.

The 5 SPACs that completed listings in Hong Kong are: Aquila Acquisition, HK Acquisition (Hong Kong Hui De), Vision Deal Acquisition, Interra Acquisition, and TechStar Acquisition Corporation.

3.2 Case Analysis of the First SPAC Target Company Merger in Hong Kong

On March 10, 2024, Zhaogang.com submitted a listing application to the Hong Kong Stock Exchange. It plans to merge with Aquila Acquisition Corporation (7836.HK), a SPAC established by CMB International Asset Management among others, to list in Hong Kong via a De-SPAC process, with an estimated valuation of approximately HKD 10.004 billion. This valuation represents an increase of over 16% compared to Zhaogang.com's valuation of approximately HKD 8.568 billion after its last pre-listing financing round. If successful, this will become Hong Kong's first SPAC merger transaction.

4. Development Prospects of the SPAC Hong Kong IPO Market

4.1 Willingness of New Economy Companies to List in Hong Kong via SPAC

The acquisition targets of SPAC companies that have already submitted listing applications to the Hong Kong Stock Exchange are mostly in the new economy and TMT sectors, including innovative technology, healthcare, technology-driven financial services, and consumer industries. This indicates a relatively positive willingness among new economy companies to list via Hong Kong SPAC IPOs.

4.2 Competitiveness of Hong Kong's SPAC Market Compared to New York and Others

Compared to the U.S. SPAC system, which has been established for over 20 years, Hong Kong's SPAC system is just beginning. Market participants need time to adapt, and some rules still require refinement. However, the emphasis on professionalism in Hong Kong's SPAC system highly aligns with the current practical needs of new economy companies. If the Hong Kong SPAC listing mechanism develops smoothly, it will attract more innovative companies from Greater China, Southeast Asia, and other regions around the world to list in Hong Kong.

The SPAC listing mechanism is another powerful measure by the Hong Kong Stock Exchange following the 2018 reform on weighted voting rights, bringing new momentum to the market. However, excessively high thresholds and restrictions may undermine the inherent advantages of the SPAC model and reduce the attractiveness of Hong Kong SPAC IPOs. It is hoped that after receiving feedback from various market participants, the Hong Kong Stock Exchange can make corresponding evaluations and adjustments to promote the further prosperity and development of Hong Kong's financial market.