Spac bubble fears lead HK, Singapore down cautious path

HONG KONG • Hong Kong and Singapore are trying to get in on the boom in blank-cheque company listings, while safeguarding investors from what some say is a bubble about to burst.

The authorities in the Asian financial hubs are mulling over tighter frameworks than in the United States for listings of special purpose acquisition companies (Spacs).

The US-led dealmaking boom has raised about US$100 billion (S$134 billion) so far this year, even though it is now showing signs of fizzling amid increased scrutiny by regulators.

"They are a bit too late to the party, so it's good that they are cautious," said Mr Justin Tang, head of Asian research at United First Partners in Singapore. "The euphoria in this space means that caution is highly warranted."

Pushed by the government, Hong Kong is said to target having its regime in place by the year end.

The plan, still being formulated, would set special conditions for sponsors of Spacs, including having a track record of managing money, and that Spac acquisitions will have to meet the existing standards for initial public offerings (IPOs).

The city is in a race with Singapore, which is now further along after releasing a consultation paper on its plan last week. The Singapore Exchange's (SGX) regulatory arm is proposing a minimum $300 million market capitalisation. The US has no such floor. Singapore is also proposing stricter criteria for warrants and share redemptions.

Investors and dealmakers in both cities are now questioning whether the tighter scrutiny will hamper their ability to attract Spacs.

Ms Marcia Ellis, a partner in Morrison and Foerster in Hong Kong, said too many "safeguards" in the framework "could kill flexibility, which may render it unattractive to Spac sponsors".

Singapore's minimum market value implies a valuation of the target company of more than US$1 billion, which is relatively hard to find among South-east Asian companies, said Ms Stefanie Yuen Thio, joint managing partner at legal firm TSMP Law.


"The market expects and has priced in US-style Spac terms," she said. "We need to be a 'price taker' on this or risk missing the boat entirely."

Depending on market feedback on the consultation, which is open until April 28, Singapore aims to have its framework in place by mid-year, SGX RegCo chief executive Tan Boon Gin said last week.

Hong Kong, meanwhile, is looking to have a consultation paper ready for feedback by June at the earliest, people familiar with the matter have said.

Spacs raise money from investors with a plan to acquire another company within two years. But a big concern now is that with a boom in such deals, there will be few viable companies available for them to acquire down the line.

An index that tracks Spacs has slid 21 per cent since mid-February. Mr Ronald Chan, founder and chief investment officer of Hong Kong-based Chartwell Capital, said the city should avoid taking a leading role in Spacs, calling it a "massive bubble".

In Hong Kong, there is also added concern of a setback in its efforts to tame the wilder side of its market, after years of combating shell companies seen as a hotbed for stock manipulation.

"The last thing we wish to see is to overthrow or disrupt the long, hard-earned effort against shell and reverse takeovers," Mr Chan said.

Spac listings are spared from the level of scrutiny imposed in Hong Kong on a regular IPO, including stringent disclosures and due diligence by sponsors that could hold the banks themselves responsible.


That is a concern for investors, said Dr Christine Chow, a board director at London-based International Corporate Governance Network.

"Without that transparency, investors might be buying into the brand name of a private equity firm or a star CEO or founder," she said.

Hong Kong is now losing out on deals from some of its biggest names, who are preparing to raise or have raised such funds in the US.

Horizon Ventures, a firm backed by billionaire Li Ka-shing, this year took its three financial technology holdings - Hippo Enterprises, Doma and Bakkt - public in Spac deals valued at US$10 billion in total.

Listing through a Spac can be completed in weeks, compared with the 12 months it would take to go public in the regular way. But Hong Kong's legal framework also presents other hurdles.

In the US, investors are able to seek class action suits against wrongful statements, enabling market regulators there to have a lighter touch.

Mr Chan said Hong Kong can take a roundabout approach and still benefit from the boom.

He proposed the city should look at setting up a "Spac Connect" system where investors could access and trade Spacs listed elsewhere, offloading the regulatory burden of accounting fraud and insider trading to the foreign venues.


A version of this article appeared in the print edition of The Straits Times on April 08, 2021, with the headline 'Spac bubble fears lead HK, Singapore down cautious path'. Subscribe