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Hong Kong, Singapore adopt divergent approaches to SPACs as deals heat up

Hong Kong and Singapore, Asia's most established financial centers, are taking very different approaches to blank-check companies, alternatives to traditional IPOs that are gathering steam in the region where takeover targets are plentiful.

Singapore Exchange Ltd. is reportedly working toward listing special purpose acquisition companies, which are skeleton organizations that launch with the intention of buying and reverse merging with a private company, as early as 2021. On the other hand, Hong Kong Exchanges & Clearing Ltd., where companies raised several times more funds from IPOs than its Singapore counterpart in 2020, is treading a cautious path.

"The quality of information disclosure and corporate governance remain some of the major concerns of investors in Greater China and the overall Asian market," said Bruce Pang, head of macro and strategy research at China Renaissance Securities (Hong Kong).

"Considering Asian exchanges' prudent attitude and tightening reviews on shell companies, backdoor listing, reverse takeover or reverse merger, all of which are vehicles similar to SPACs that may also allow companies to circumvent IPO scrutiny and regulatory oversight, the bourses are unlikely to fully embrace SPACs anytime soon."

In Asia, only South Korea and Malaysia currently allow SPACs to list. A surge of newly listed SPACs in 2020, mostly in the U.S., indicates that more companies are on the hunt for deals in 2021. Analysts say Southeast Asia is likely a fertile ground for acquisitions by SPACs, due to the vibrant technology startup scene and smaller local IPO markets. That raises the question of whether Asia's major financial hubs like Hong Kong and Singapore should consider jumping on the SPAC bandwagon.

Hong Kong likes IPOs

Hong Kong, one of the world's top IPO destinations alongside New York and Shanghai, has been skeptical about non-IPO listings. In recent years, HKEX has been tightening rules on backdoor listings and shell activities. In addition, regulators in Hong Kong and mainland China have been simplifying listing procedures and requirements, making companies less keen on going the SPAC route, experts say.

For example, Hong Kong now allows pre-revenue biotech companies to list on the main board, and The Shanghai Stock Exchange Ltd.'s science and technology innovation board has been successful in attracting high-growth startups. The popularity of these trading venues also means that companies could have more favorable valuations, a lack of which is always a key reason for companies choosing the SPAC route instead.

Hong Kong's Financial Leaders Forum, led by Financial Secretary Paul Chan, was briefed on the latest developments in the global SPAC space on March 1 by the Securities and Futures Commission and HKEX. "The SFC and HKEX were asked to explore suitable listing regimes to enhance the competitiveness of Hong Kong as an international financial center, while safeguarding the interests of the investing public," according to a government press release.

"We regularly look at ways to enhance our listing regime, as part of our commitment to enhance the competitiveness and attractiveness of our IPO market, whilst maintaining market quality," an HKEX spokesperson told S&P Global Market Intelligence on March 2.

At an earnings call on Feb. 24, HKEX's interim CEO Calvin Tai said the bourse "will open our eyes and ears, listen to the market, and watch other markets" when it comes to attracting listings to Hong Kong.

"I think Hong Kong actually has been very successful in capital raising, attracting new IPOs," Tai said in response to a question about SPACs. "We will continue to conduct all the activities and also study all the alternatives that can achieve this objective. And we will do our homework and in the right time, when we have new ideas we will communicate with the market."

In 2020, Hong Kong Exchange helped 154 companies raise a combined HK$400.2 billion in IPO proceeds. The bourse also collected HK$1.9 billion in listing fees in 2020.

Singapore embraces SPACs

Meanwhile Singapore, whose IPO ranking is far behind Hong Kong, is mulling SPACs as a new growth engine for listings.

"We have noticed the increasing popularity of SPAC listings in other markets, especially given volatile global conditions," SGX told Market Intelligence in an e-mail. "A SPAC could grant issuers a faster time to market and more certainty in terms of price and execution. This would, in turn, benefit capital markets both locally and regionally. We will need to consult the market if we propose rule changes to enable SPAC listings."

The Singapore bourse operator reportedly plans to consult the market on the plan as soon as the first quarter.

Mark Uhrynuk, corporate and securities partner at Mayer Brown, said the reason for Singapore to look at SPACs would be to tap into the vibrant tech start-up environment in Southeast Asia, which has been a major sector to benefit from these blank-check companies.

"Singapore would be the first exchange in Asia to join the rush to attract tech-focused SPACs," he said.

Marcia Ellis, global chair of the private equity group at Morrison & Foerster, said the exchange is "pretty likely to move forward" with the consultation paper and the procedures to approve SPAC listings in Singapore to attract new economy companies.

"Singapore Stock Exchange tends to have more REITs and old economy companies," she said. "In order to attract more new economy companies, if they were able to come to terms with changing regulations enough to allow blank check companies, then that would be a way for them to attract more of these SPACs."

Leong Chuo Ming, partner in the corporate team for Withers KhattarWong, said that whether introducing SPACs in Singapore will work will depend on the implementation.

"So long as investors are made very clearly aware of the risks and actual cost involved, like all other investment models, its adoption into our capital markets is essential if we are to remain globally competitive," he said.