By Scott Murdoch

HONG KONG (Reuters] – Hong Kong has been hit by volatility in the market and a blank-check firm backed VMS Asset Management has halted its plans for public listing. According to a source with knowledge, this is threatening Hong Kong’s chances of acquiring special-purpose companies (SPACs).

According to a person who declined to identify because the information is secret, Vivere Lifesciences Acquisition Corp is still waiting for the markets to stabilize before it opens its books.

VMS has not responded to my request for comment.

This pause is coming just months after Hong Kong regulators allowed blank cheque companies to list on Hong Kong stock exchange. The purpose of the listing was to be competitive with other bourses, and to tap into demand for these investment vehicles.

The approval was hoped by regulators and bankers to attract mainland China investors to register SPACs. These funds are used to acquire private firms that will then be listed via the vehicle.

But, Hong Kong’s first SPAC (Aquila Acquisition Corp) is trading at 8.2% lower than its HK$10 price, despite a limited turnover, since March 18.

According to the Hong Kong Exchanges and Clearing Ltd website (HKEX), eleven SPAC candidates have filed preliminary filings for listing. However, bankers think there won’t be any rush until the market sentiment improves.

“The timing, the market and overall sentiment is not great for SPACs right now,” said Ben Quinlan, chief executive of financial services consultancy Quinlan & Associates.

“The world faces many major challenges. There is so much uncertainty that anyone looking to list is likely to realize it’s not an ideal moment.”

Hong Kong’s benchmark fell nearly 15% by 2022, as equity markets around the world experience increased volatility because of Russia-Ukraine conflicts, China coronavirus containment and increasing U.S. interest rates.

Hong Kong stipulates that only retail investors, which makes up a large portion of Hong Kong’s population, can buy and sell SPAC stocks. This is due to the high risk of purchasing a company without any physical assets. According to some bankers, this restriction is responsible for the lackluster market.

Professional investors are also allowed to trade under these rules, provided they can prove that brokers have met the criteria for limiting buying or selling SPAC shares.

HKEX spokesperson said that the exchange is confident in the city’s long-term prospects for its SPAC program.

According to an SFC spokesperson, “The Securities and Futures Commission in Hong Kong believes that the SPAC system provides sufficient flexibility and incentive for a high quality SPAC marketplace.”

“The SFC and the Hong Kong Stock Exchange will monitor their future.”