New listing regime for SPACs in Hong Kong

Following up on our client update in September, The Stock Exchange of Hong Kong Limited (the Hong Kong Stock Exchange) has presented the conclusions (the Conclusions Paper) to its consultation paper on proposals (the Consultation Paper) to create a listing regime for special purpose acquisition companies (SPACs), and introduced a new Chapter 18B to the Rules Governing the Listing of Securities on the Hong Kong Stock Exchange to create such regime. The new rules will become effective from 1 January 2022.

The overwhelming majority of responses to the Consultation Paper generally supported the Hong Kong Stock Exchange’s proposal. After considering market feedback, the proposals set out in the Consultation Paper have been broadly implemented, with key amendments as follows:

• Open market requirement at initial listing: the securities of a SPAC must be distributed to a minimum of 20 (instead of 30) Institutional Professional Investors (as defined in the Conclusions Paper).
• SPAC directors: the board of a SPAC must have at least two Type 6 or Type 9 Securities and Futures Commission-licensed individuals (including one director representing the licensed SPAC Promoter (as defined in the Conclusions Paper).
• Alignment of voting with redemption: the initial proposal to align voting with redemption, which may create the unintended result of incentivising shareholders to vote against a de-SPAC transaction for the sole reason that it provides them with the option to redeem, has been removed.
• Mandatory independent PIPE investment: the minimum size of independent investment by PIPE in a de-SPAC target has been strengthened with the introduction of a staggered threshold relative to the negotiated value of such de-SPAC target. At least 50 per cent of such independent investment by PIPE must come from a minimum of three institutional investors with assets under management of at least HK$8 billion.
• Dilution cap on warrants: the dilution cap on warrants has been raised to 50 per cent, with more prominent disclosure on the dilutive effect of all warrants. The minimum exercise price of the SPAC Warrants and Promoter Warrants (both as defined in the Conclusions Paper) must represent at least a 15 per cent premium to the issue price of the SPAC Shares (as defined in the Conclusions Paper).

We have already been working on a number of potential Hong Kong SPAC projects, and would be keen to explore further with prospective market players.