Hong Kong stocks greet the tide of SPAC listing, an article detailing the "blind box model" of the capital market

Since the beginning of this year, the Hong Kong Stock Exchange has welcomed a number of SPAC tables to be listed. Recently, Trinity Acquisition was co-sponsored by Li Ning (HK 02331) to deliver the main board of the Hong Kong Stock Exchange, with JPMorgan Chase and Credit Suisse acting as joint sponsors.

According to the prospectus, Trinity plans to focus on lifestyle companies in the global consumer sector to create long-term shareholder value. Trinity's promoters are well-known entrepreneur Li Ning, private equity firm LionRock and Astrapto, who own 33%, 42% and 25% of all class B shares issued, respectively.

According to Wind statistics, since 2022, there have been 4 SPAC tables listed on the Hong Kong Stock Exchange: on January 17, the Hong Kong Stock Exchange welcomed the Aquila Acquisition (Aquila) table delivery; on January 28, Tiger Jade Acquisition (Tiger Jade) submitted the form to the Hong Kong Stock Exchange; on January 31, Trinity Acquisition (Trinity) and Interra Acquisition (Interra) also submits the form to the Hong Kong Stock Exchange.

Four SPAC companies focus on different areas //

SPAC is a shell company whose purpose is to acquire a company (i.e. an SPAC M&A target) within a predetermined period of time after listing (i.e. SPAC M&A transaction). If the M&A transaction is successful, the target company will go public. If the M&A transaction is not successful by the stipulated deadline, the SPAC must be liquidated and the funds raised are returned to the investor.

In contrast to "backdoor listing", SPAC can be understood as the active acquisition of another company by one listed shell company. The listing of the proposed listed enterprise through the SPAC model is generally divided into four stages: the establishment of the SPAC by the professional promoter; the completion of the IPO listing of the SPAC shell company; the search for the target of the merger and the smooth completion of the merger through PIPE (private equity financing); and the completion of the merger and acquisition (De-SPAC), the replacement of the stock code and the company name.

According to Wind, the four SPCs currently listed on the Hong Kong Stock Exchange are investing in different sectors: Aquila plans to focus on technology-enabled companies in "new economy" sectors in Asia (especially China) (such as green energy, life sciences and advanced technology and manufacturing industries); Tiger Jade focuses on the healthcare industry; Trinity focuses on global consumer sectors; and Interra plans to invest in innovative technology, consumer and new retail, high-end manufacturing, High-growth companies in healthcare and climate action.

From the perspective of the initiators, the initiators of the four SPAC are all from well-known institutions and individuals. For example, one of the promoters of Aquila is CMB International Asset Management; Tiger Jade promoters include Taixin Capital, a private equity fund focused on healthcare; Trinity promoters include well-known athlete Li Ning; and Interra is initiated by Primavera Capital, ABC International Asset Management and other institutions.

Overview of SPAC Listing Mechanism of Hong Kong Stocks //

In December 2021, The Stock Exchange of Hong Kong Limited (SEHK), a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEX 00388) announced the introduction of new rules to establish a new SPAC listing mechanism in Hong Kong, effective 1 January 2022.

The HKEx stipulates that the size of an independent PIPE investment (post-IPO private placement) should set different thresholds according to the SPAC M&A objectives of different sizes, while at least 50% of the independent PIPE investment must come from at least three institutional investors, and the total asset management value of the three must be at least HK$8 billion respectively.

HKEX may suspend SPAC's transaction if it is unable to announce a SPV transaction within 24 months of listing, or completes an M&A transaction within 36 months. The SPAC must return 100% of the funds raised by it (plus accrued interest) to its shareholders within one month of the suspension of trading. The SPAC will then be delisted.

Compared with Singapore and the United States, the SPAC mechanism in the Hong Kong market has stricter requirements in terms of investor qualifications, promoter qualification requirements and listing scale. For example, from the perspective of investors, before completing SPAC M&A transactions, the Hong Kong market only allows professional investors with higher thresholds to subscribe to and buy and sell SPAC securities.

Huatai Securities Research Institute believes that SPAC, as a complement to the traditional listing method, will provide issuers with new options in a volatile market environment, helping to help the Hong Kong market and the Hong Kong Stock Exchange maintain a comprehensive competitive advantage. The decline in market uncertainty and the landing of SPAC may boost the Hong Kong IPO market to some extent, and the liquidity environment and whether SPAC can find high-quality target companies may also affect the long-term prosperity of Hong Kong stock SPAC.

CDB Securities said that it is expected that the introduction of the SPAC model in the short term is unlikely to be introduced in the Chinese mainland, for four reasons: first, the positioning of the Beijing Stock Exchange as the main position of serving innovative small and medium-sized enterprises will not change in the short term; second, the registration system has yet to be implemented in the whole market; third, the SPAC model conflicts with the existing listing rules, and the revision is not an overnight achievement; fourth, the domestic investor education needs to be strengthened urgently, and the introduction of the SPAC model is contrary to the concept of protecting investors. In the medium and long term, the introduction of the SPAC model may have certain possibilities.

Overseas SPAC Fundraising //

CDB Securities said that from a global perspective, the number of SPAC IPOs and the amount of funds raised have ushered in an upward acceleration in the second quarter of 2020, reaching 25 and 6.5 billion US dollars respectively, 82 IPOs in the third quarter raised a total of 29.1 billion US dollars, the fourth quarter continued the growth trend, 134 IPOs raised a total of 35.3 billion US dollars, in the first quarter of 2021 to achieve a blowout outbreak, a total of 298 IPOs in a single quarter, the amount of funds raised reached 82.8 billion US dollars, Fundraising fell off a cliff in the second quarter of 2021, with 61 IPOs recording only $11.9 billion.

From the perspective of the factors behind the SPAC boom, sufficient and even flooded liquidity is the foundation; the epidemic is an unprecedented "catalyst"; and the resonance of interests of all parties is the source of motivation. But the SPAC model has a policy dividend, and when regulatory policies are tightened, this frenzy will suddenly cool down. In the long run, the application cycle of technological innovation is getting shorter and shorter, and the demand for re-segmentation of interests is a long-term factor supporting the SPAC frenzy.

Since the beginning of 2021, nearly 200 companies have completed mergers with U.S.-listed SPAC across a range of industries, including software, biotechnology, electric vehicles and sports betting. But redemptions of SPAC stock began to pick up last summer, with redemptions above 50 percent in July and merger cancellations rising, suggesting some investor dissatisfaction.

Jay Ritter, a professor at the University of Florida's Warrington College of Business, used data from SPAC Research to say, "Of the 262 SPAC M&A deals completed between 2020 and 2021, The average share price at December 31, 2021 was $8.70, significantly lower than the average share price of more than $10 at the time of the merger. ”

Ritter added: "Given that the stock market is close to an all-time high in 2021, the average share price decline during the 2020-2021 M&A deal (De-SPAC) period is noteworthy."

This article is from Wind News