New listing rules are paving the way for plenty of SPAC activity in Hong Kong and Singapore in the coming months. With Singapore already seeing its first SPAC IPOs, and Hong Kong recently approving a listing framework of its own, offshore law firms are gearing up to take advantage of this nascent opportunity.
Special purpose acquisition companies (SPACs) have a long history in the U.S. but in recent months these structures have generated buzz in Asia — especially in Hong Kong and Singapore – as investors eye potential opportunities. Following regulatory developments, legal work related to these blank-cheque companies is picking up steam, and offshore lawyers expect a busy year ahead.
In December, Hong Kong’s stock exchange operator said SPACs could list in Hong Kong from Jan. 1, becoming the latest global bourse to tap demand for the investment vehicles. It came a few months are Singapore introduced its own set of rules permitting SPACs, and lawyers welcomed the update.
“The recent revisions to the Hong Kong Main Board Listing Rules introducing the SPAC regime is an incredibly positive step forward in addressing the competitive disadvantage Hong Kong faced in attracting SPAC sponsors to the market, particularly from the dominant U.S. exchanges.”
- Michael Padarin, Carey Olsen
“The recent revisions to the Hong Kong Main Board Listing Rules introducing the SPAC regime is an incredibly positive step forward in addressing the competitive disadvantage Hong Kong faced in attracting SPAC sponsors to the market, particularly from the dominant U.S. exchanges,” says Michael Padarin, Carey Olsen’s Hong Kong managing partner, who notes Hong Kong is a “hyper-competitive marketplace, with competition for listings from exchanges in the PRC, regional exchanges such as Singapore and also the major U.S. exchanges.”
He adds that the city’s SPAC listing regime seeks a balance, “introducing relatively stringent requirements for the quality of both listing candidates and also de-SPAC targets, addressing the commercial needs of SPAC sponsors whilst also raising the bar in terms of investor protections.”
Although some commentators have said the quality and suitability requirements set out in the new regime are too high, and might detract from the commercial attractiveness of the SAR, Padarin says that “SPAC promoters in the PRC and Kong have largely welcomed the development and see it as increasing the attractiveness and accessibility of Hong Kong as a listing venue,” he says.
Alan Au, a senior legal manager in Ogier’s corporate team in Hong Kong, says the new listing rules allow Hong Kong to be considered a suitable venue for listing of SPACs.
“The new rules in Hong Kong have been promoted by the Stock Exchange as an alternative way of listing, not an easier way of listing. In this respect, the HKEX has successfully maintained the Hong Kong stock market’s reputation as a venue for listing of high-quality companies and businesses, while increasing its attractiveness and, at the same time, opening it up to the growing SPAC market and making it more competitive,” he says.
Richard Hall, a corporate partner at Conyers, agrees Hong Kong’s amendments to SPAC listing rules meets the market needs well.
“For SPACs looking to complete a business combination with an Asian-focused business, a Hong Kong-listed SPAC is viewed as a potentially more logical fit than a U.S. listed SPAC, with Asian based investors more familiar with local/regional businesses and investment issues.”
- Richard Hall, Conyers
“For SPACs looking to complete a business combination with an Asian-focused business, a Hong Kong-listed SPAC is viewed as a potentially more logical fit than a U.S. listed SPAC, with Asian based investors more familiar with local/regional businesses and investment issues. The rules strike an appropriate balance between flexibility of fundraising, ease of completing the business combination (or de-SPAC) and suit-able protection for investors,” he says.
TECH BOOM
Over in Singapore, following a series of listings, the market is abuzz. Carey Olsen Singapore managing partner Anthony McKenzie says Singapore may echo the early SPAC enthusiasm seen in the U.S.
“SPAC listings have been touted as a more streamlined alternative to traditional IPOs and were all the rage on U.S. exchanges in 2020 and early 2021 until the market cooled and regulators began to apply more scrutiny. Singapore is keen to follow in the footsteps of the U.S., and its SPAC listing initiative comes amid a boom in tech investment in Southeast Asia, which is home to over 650 million people and fast-growing economies such as Indonesia, the Philippines and Vietnam,” he says.
“Such regional economic growth and the introduction of Singapore’s SPAC framework will no doubt be accompanied by increased demand for deals and legal services here. As the Singapore market prepares for more SPAC activity, both SPACs and target companies will also look to engage various other service providers in order to address finance, accounting, regulatory and compliance issues at each stage of the SPAC life cycle,” McKenzie adds.
Offshore firms too are gearing up for further work in this area — McKenzie says the first three SPACs making their debuts on the SGX “notably each used a Cayman exempted company as the issuer vehicle.”
“These listings mark the first major launch of SPACs in Asia, represent a much-needed revival for the SGX (which has struggled to compete with the Hong Kong and U.S. exchanges for high-profile tech IPOs) and should help SGX shake off its reputation as an exchange dominated by real estate investment trusts and investors searching for yield rather than growth,” he says.
Au calls these developments “exciting,” and like McKenzie, he has observed the role of Cayman-incorporated companies in this trend.
"Cayman and the BVI are favourite jurisdictions for U.S. based SPACS for several reasons, including the particular suitability of their company law to SPACs, limited additional regulatory compliance requirements, tax neutrality, the trustworthy and reliable legal system, and no exchange controls.”
- Alan Au, Ogier
“Vertex Technology Acquisition, being likely the first SPAC to be listed in Singapore, is a company incorporated in the Cayman Islands and this means that Singapore SPAC projects will likely involve offshore legal counsel like Ogier. Historically, many companies listed in Singapore have been incorporated in Singapore, but we hope that Singapore SPACs will follow those of U.S. and promulgate offshore companies as viable and attractive vehicles to be listed in the city-state. Cayman and the BVI are favourite jurisdictions for U.S. based SPACS for several reasons, including the particular suitability of their company law to SPACs, limited additional regulatory compliance requirements, tax neutrality, the trust-worthy and reliable legal system, and no exchange controls,” Au notes.
OFFSHORE ROLE
Prior to preparation for listing, offshore law firms would typically assist with setting up the offshore companies and restructuring, Au says of the work SPACs generate for offshore firms.
“Offshore law firms will then be engaged for the listing of SPAC on the relevant stock exchange. At the time of de-SPAC, offshore law firms would also play an important role in business combination as this would typically involve a Cayman statutory merger. Upon the de-SPAC, offshore law firms are often engaged in wide range of legal work customarily required from a listed company,” he says.
Padarin says Cayman Islands companies continue to be favoured by sponsors and investors when considering a SPAC transaction, “particularly where the target company is based outside of the U.S.”
“Cayman Islands companies listed in the U.S. can take advantage of the ‘foreign private issuer’ rules and exemptions making Cayman companies attractive at the IPO stage; the Cayman Islands also has a very flexible and well-tested merger regime which is commonly utilised to effect the ultimate business combination or de-SPAC transaction. As of June 2021, there were 289 Cayman Islands companies listed on NASDAQ and 185 Cayman Islands companies listed on the New York Stock Exchange. By end of 2020, there were 1,186 Cayman Islands companies listed on the Hong Kong Stock Exchange, which accounted for 60.36 percent of the aggregate number of listed companies on the Hong Kong Stock Exchange,” he notes.
And now, it is common for the listing vehicle and also the de-SPAC target to be structured as Cayman Islands companies, says Padarin noting “we are being instructed as Cayman Islands counsel at both the SPAC IPO stage, and also the de-SPAC stage, in each case alongside onshore counsel. Following the de-SPAC transaction, there is also an ongoing role as company offshore legal counsel.”
“With the implementation of the Hong Kong SPACs regime, we are optimistic that the demand for Cayman vehicles will continue to grow,” he adds.
And it appears that growth may be rapid, as firms nail down plans post regulatory developments.
“The finalisation of the Hong Kong Listing Rules allowing for SPAC listings has focused issuers and investor’s attention on Hong Kong as a viable market for SPAC listings,” Hall says.
“A number of clients have initiated, or firmed up, plans to list a SPAC in Hong Kong, whilst other issuers who had previously been considering listing a SPAC in the U.S. have switched their attention to Hong Kong. Meanwhile, in a welcome development for the Singapore capital markets, the first two SPACs launched their IPOs last week and are set to list this month, with a third SPAC lodging its preliminary prospectus in the same week,” he says. “The race to be a SPAC hub in Asia is on.”
