HKEX: New Listing Regime For Special Purpose Acquisition Companies

Substantial market support for new SPAC regime proposals
New regime listing applications welcomed from January 2022 onwards
HKEX Head of Listing Bonnie Y Chan’s podcast on the new SPAC regime, explains the final model adopted and the prospects for SPAC listings in Hong Kong

The Stock Exchange of Hong Kong Limited (the Exchange), a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEX), today (Friday) announced new rules to create a listing regime for special purpose acquisition companies (SPACs)1 that will take effect on 1 January 2022.

HKEX Chief Executive Officer, Nicolas Aguzin, said: “HKEX is fully focused on making Hong Kong’s markets internationally attractive, competitive and diversified. Our new SPAC listing regime reflects our commitment to continue to build Hong Kong’s reputation as the region’s premier capital-raising market, reinforcing its global role as a world-leading international financial centre.”

“By enabling experienced and reputable SPAC Promoters2 to source listings from new and innovative industries, we look to help fuel the growth of the companies of tomorrow. We would like to thank all stakeholders for their feedback and contributions, which have been vital in helping us to introduce this major new avenue for connecting capital with ideas,” Mr Aguzin added.

The Exchange received 90 non-duplicate responses to the consultation on the proposed regime from a broad range of respondents, including SPAC Promoters, professional bodies, investment managers, corporate finance firms and individuals. The majority of our proposals received support from over 80 per cent of respondents who expressed a view on them.

HKEX Head of Listing, Bonnie Y Chan, said: “Throughout the process of creating the new SPAC regime, we have been in continuous dialogue with stakeholders to understand market needs, practice and concerns. The new rules will be implemented broadly as proposed, with amendments to accommodate some commercial factors whilst ensuring the quality of listings.”

The table below sets out a summary of the key differences between the proposals set out in the Exchange’s consultation paper dated 17 September 2021 and the requirements to be implemented:

No.

Proposal

Changes to the Proposal

Open Market Requirement at Initial Listing

A SPAC’s securities must be distributed to a minimum of 30 Institutional Professional Investors3.

Proposal adopted, but the minimum number of Institutional Professional Investors required is reduced to 20.

SPAC Directors

A majority of a SPAC’s board must be composed of representatives of the SPAC Promoters who nominate them.

Replaced by a requirement for a SPAC’s board to have at least two Type 6 or Type 9 Securities and Futures Commission-licensed individuals (including one director representing the licensed SPAC Promoter).

Alignment of Voting with Redemption

SPAC shareholders must only be able to redeem SPAC Shares if they vote against a De-SPAC Transaction.

Proposals replaced with strengthened Independent PIPE Investment4 requirements (see item 4 below) to provide a stronger regulatory check on the terms and valuation of the De-SPAC Transaction.

Mandatory Independent PIPE Investment

Size of Independent PIPE Investment
Independent PIPE Investment must constitute at least 25% of the expected market capitalisation of a Successor Company, or 15% to 25% in the case of Successor Companies with an expected market capitalisation of over HK$1.5 billion.

Significant Sophisticated Investment

At least one independent PIPE investor must be an asset management firm or fund with assets under management (AUM) of at least HK$1 billion, and the PIPE investment must result in this investor beneficially owning at least 5% of the issued shares of the listed issuer following the completion of a De-SPAC Transaction.

Size of Independent PIPE Investment
Replaced by staggered Independent PIPE Investment size thresholds relative to the negotiated value of a De-SPAC Target (NV):

NV (In HK$ billion)	Minimum Independent PIPE Investment as a percentage of NV
<2	25%
2 - 5	15%
5 - 7	10%
=> 7	7.5%
>10	Waiver to be considered on a case-by-case basis

Significant Sophisticated Investment
Replaced by a requirement that at least 50% of the Independent PIPE Investment (stated above) must come from at least three institutional investors with AUM of at least HK$8 billion.

Dilution Cap on Warrants

SPACs must not issue warrants, in aggregate, that, if exercised, would result in more than 30% of the number of shares in issue at the time such warrants are issued (Overall Warrant Cap)

Overall Warrant Cap increased to 50%.
More prominent disclosure on the dilutive effect of all warrants required.
No separate cap on the warrant to share ratio and on Promoter Warrants5.

No.	Proposal	Changes to the Proposal

The Consultation Conclusions and copies of the respondents’ submissions are available to view on the HKEX website.

Notes:

A SPAC is a type of shell company that raises funds through its listing for the purpose of acquiring a business (a De-SPAC Target) at a later stage (a De-SPAC Transaction) within a pre-defined time period after listing.
SPAC Promoters, also known as “SPAC Sponsors” in the US, are persons who establish and/or beneficially own Promoter Shares issued by a SPAC exclusively to them at nominal consideration.
Institutional Professional Investors are persons falling under paragraphs (a) to (i) of the definition of “professional investor” in section 1 of Part 1 of Schedule 1 to the SFO.
Independent Private Investments in Public Equity (PIPE) Investments are independent third party investments made for the purpose of completing a De-SPAC Transaction that have been committed by the time of announcement of the De-SPAC Transaction.
Promoter Warrants are a class of warrants issued by a SPAC exclusively to a SPAC Promoter.