Text | Ren Qian
Edit | Liu Jing
36Kr learned that a special purpose acquisition company (SPAC) jointly initiated by Vanke founder Wang Shi submitted an initial public offering (IPO) application to the Hong Kong Stock Exchange on April 8, named Destone Acquisition Corp. (Chinese name: Deep Stone Acquisition Enterprises Limited).
To date, 12 companies have filed SPAC procedures on the HKEx, and Destone Acquisition Corp. is the first carbon neutrality subject. According to the prospectus, Destone Acquisition Corp. Under the general trend of carbon-neutral economic transformation, we will mainly look for innovative companies in the fields of green technology and environmentally friendly consumer goods and services as targets for mergers.
According to 36Kr, Asia Investment Fund Management Limited, the co-sponsor of this SPAC, is also an investment institution that emphasizes ESG standards and concepts.
Behind Destone Acquisition Corp. is Shenshi Capital, an investment platform founded by Wang Shi, founder of Vanke Group, which is his second venture after four years of absence from Vanke.
Regarding SPAC, a financial instrument that is called a special purpose acquisition company, we have reported on it many times. As an alternative form of innovation for listed companies, in simple terms, SPAC first completes the IPO itself, and then acquires a promising but unlisted "target company" through business mergers.
In 2020, when SPAC broke out, it accounted for 53% of the total number of IPOs in the United States. This figure was even more exaggerated in the first quarter of 2021: 298 SPCs went public and raised a total of $95 billion, which is more than the total amount of funds raised in 2020 in three months.
But now, it's an out-of-control. The vast majority of companies listed through SPAC are now trading well below all-time highs, most notably Grab, the Southeast Asian ride-hailing giant that jumped to become the largest SPAC in history at a valuation of $39.6 billion, but now its market value has fallen nearly 70% to only $13.4 billion.
"Gamble with other people's money." Buffett once defined SPAC, and the value investment guru Munger directly said that it was a kind of "bubble". Two big names in the investment community pointed to speculation in SPAC and said it was a by-product of the influx of new investors into the stock market.
A signaling event is that Citi, one of the largest SPAC underwriters in the United States, has suspended its SPAC business, according to Bloomberg. Citi's SPAC distribution was ranked second and first in 2020 and 2021, respectively.
Just as the US SPAC entered the bitter winter, the Hong Kong Stock Exchange officially announced the establishment of an SPAC listing mechanism, which took effect on January 1 this year. At present, more than 11 companies have submitted tables, of which 1 has been listed. Behind it, there are not only former Ali CEO Wei Zhe, Li Ning, gambling king's son He Youlong, Zheng Zhigang, former Hong Kong Monetary Authority President Chen Delin and other celebrities, but also Pepe such as Primavera, CMB International and ABC International Asset Management.
"The SPAC environment in Hong Kong is very different from that in the United States." A number of investors told 36Kr that the Hong Kong SPAC rules are more stringent than the United States in terms of SPAC company sponsors, asset acquisition injection, and qualified investor access thresholds, "avoiding a lot of arbitrage space."
What is not just SPAC's Deep Stone Capital?
This is the first public appearance of Shenshi Capital, founded by SPAC Wang Shi. This is an investment institution established by Wang Shi in 2021, focusing on carbon neutrality, urban renewal and new consumption.
For an SPAC, the advantage of judging it mainly lies in the sponsor of the SPAC and its management team, looking at the ability to raise funds, the ability to find targets, the ability to empower the industry, and more importantly, to judge whether the promoter can accompany the acquired company to grow together for a long time. This underlying logic has been shown in the previous US stock SPAC, and is more prominent in the Hong Kong market, where the requirements for promoters are more stringent.
According to public information, Destone Acquisition Corp. is chaired by Wang Shi and Erfei Liu, former head of investment banking in China at Goldman Sachs, serves as CEO. The SPAC can also be seen in the management team of Shenshi Capital, and its managing partner Zhang Tian serves as the director and CFO of SPAC.
The layout of the carbon neutral field is a continuation of Wang Shi's green and sustainable development concept that began in Vanke and has always been consistent. As early as 1999, Wang Shi founded the Vanke Building Research Center and launched the concept of green and environmental protection of buildings; in 2007, he officially opened the road of green building and obtained the first residential green three-star certification in China; in 2008, he launched the Vanke Public Welfare Foundation to pay attention to environmental governance and zero waste in the community; in 2018, Wang Shi also launched the "China Enterprise Climate Action".
The establishment of Shenshi Capital and the launch of the carbon neutral theme SPAC can be considered to a certain extent that in the context of the "3060" policy, Wang Shi began to take financial investment as an important way to lay out and promote carbon neutral industries, and more deeply participated in industry integration.
It is understood that the current business scope of Shenshi Holdings covers equity investment and overseas market listing platform investment, focusing on urban technology, building technology, new energy, new materials, low-carbon consumer goods and other industries under the theme of carbon neutrality. As a financial tentacle, the investment business is coordinated with its zero-carbon community industrial projects, emphasizing industrial innovation and landing practice.
"Almost every important project Wang Shi will personally review." An investor close to Deep Rock told us.
Hong Kong and SPAC 'parting ways' with the US
The epidemic in 2020 has caused a huge impact on the global capital market, and compared with the suffering of the long process and huge uncertainty of the traditional IPO, the short and fast SPAC listing has become the choice of many companies and investors to be listed. This is an important trigger for the SPAC boom in the United States.
However, statistics show that the performance of listed companies through SPAC is seriously differentiated, and only a few excellent Sponsor (promoters) have brought considerable benefits to investors after the merger and acquisition, and the vast majority of SPAC cannot even complete De-SPAC (SPAC merger transaction), or generate losses after completing De-SPAC, and the stock price plummets.
The SPAC frenzy in the United States over the past two years has been more of a "rampant speculation": many companies that have merged with SPAC have barely made revenue, but their valuations can reach billions of dollars overnight. This is reminiscent of the dot-com bubble of 2000.
At a time when the SPAC in the United States is cooling down, SPAC is aiming at emerging markets. In January, Hong Kong became the fourth securities market in Asia to introduce an SPAC mechanism after South Korea, Malaysia and Singapore. Compared with the United States, the Asian market has a higher threshold, more demanding conditions, and a stronger protection for investors.
In Hong Kong in particular, the SPAC environment is very different from that of the United States, and even goes out of two completely different paths.
From the perspective of promoters, HKEx requires that at least one SPAC promoter be a company holding Type 6 (advising on institutional financing) and/or Type 9 (providing asset management) licences issued by the SFC, and at least one promoter is required to own more than 10% of the shares of the SPAC company. SPAC promoters in the United States, all types of celebrities, entertainment or sports are very common. What the HKEx needs is an investment institution that investors can trust, reassure regulators, and have excellent ability and integrity, which can exclude a large number of promoters who just want to "join in the fun" from the beginning.
Second, the Hong Kong Stock Exchange stipulates that the IPO of SPAC in Hong Kong is only for professional investors, and only professional investors can trade SPAC securities until the M&A transaction is completed. This means that retail investors in the open market are temporarily unlikely to have the opportunity to participate in the investment cooperation of these institutions, reducing the risk of investment losses for retail investors to participate in the emerging thing of SPAC.
Third, the rules also impose much stricter requirements on asset-side injections than in the U.S. market. Enterprises need to basically meet the overall requirements of Hong Kong IPO. The rapid development of SPAC in the United States is partly due to the fact that SPAC has a lower threshold, smaller cost and shorter time than traditional IPOs. SPAC will not only make a splash in the market for companies that were previously unknown, but also support the company's expectations for the next 5 years of development – this rule also makes many high-tech companies with current revenue in the early stages, but with great potential for IPO ready, preferentially choose SPAC. The move of Hong Kong stocks undoubtedly shows a high threshold and a certain market scarcity.
A PE investor who pays close attention to the Hong Kong SPAC market once told 36Kr that there is a big difference between the United States and Hong Kong on the asset-oriented side: in the negotiations, the promoters of American SPAC companies often choose to "give profits" to investors in order to find higher fundraising amounts, while the promoters of Hong Kong SPAC companies are more willing to "give profits" to the asset side (the management team of the enterprise to be acquired) - by giving the latter more competitive equity incentives and other measures, they are encouraged to promote the sustained high growth of corporate performance.
However, Hong Kong stocks have been controversial for greatly raising the threshold of SPAC in the consultation paper, and some investors have also questioned: Is Hong Kong SPAC "overly protecting" investors?
An industry insider who has been observing the US SPAC market for many years said that the Hong Kong version of SPAC is more inclined to the "heavy quality not weight" route, of course, this may weaken the attractiveness of the Hong Kong SPAC market.
However, it is worth noting that broadening listing options and enhancing competitiveness are the main reasons for the launch of SPAC on the Hong Kong Stock Exchange. Chen Yiting, head of listing at the Hong Kong Stock Exchange, said at the press conference that SPAC is not expected to become the mainstream, and the launch of SPAC is not to replace the traditional way of public offering, the two are complementary.
Based on the above strict rules and requirements, Hong Kong's SPAC will most likely not be over-popular in the United States. The above-mentioned investors said that it is expected that no more than 20 SPAC will be issued in 2022, and the industry resources and empowerment capabilities of the promoters will become important indicators to test the SPAC.