Is the SPAC boom over? Asia, US deals appear to be fizzling out
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Some businesses are choosing Hong Kong over Singapore as their Asia headquarters because it is less desirable than Singapore.
Getty Images – Reuters| Getty Images, Reuters
It’s been a slow and cautious start for SPACs that launched in Hong Kong and Singapore in recent months — in stark contrast to last year’s SPAC boom in the U.S. which has also fizzled out.
SPACs can be described as special-purpose acquisition companies. These shell companies raise capital through an initial public offering. They then use that cash to merge with private companies in order to go public. Usually, they do so within two years.
One SPAC, which was launched in Hong Kong, raised $128M, but three SPACs were launched elsewhere in Singapore. The total investment in Singapore is $334M, according to Refinitiv data analytics.
It is possible that investors are more patient than the US’s retail investors, who chased high-quality SPACs. [the]They hope to acquire a “hot start-up,” said Neil Campling of Mirabaud Equity Research, who is head for technology, media, and telecom research.
One of the SPACs that were listed in Singapore was Vertex Technology AcquisitionAnd PegasusBoth of these stocks were traded last at $5.60 ($5.60) below their current offer prices.
Aquila Acquisition’s SPAC debut was made in Hong Kong by Aquila Acquisition on March 10. The offer price for 10 Hong Kong Dollars ($1.27) also traded below the actual trading level. The stock exchange reported that Hong Kong had 10 additional SPAC applications at mid-March.
SPACs are listed in Hong Kong, Singapore
| SPAC | Exchange | Proceeds raised |
|---|---|---|
| Vertex Technology Acquisition Corp | Singapore | $125.87million |
| Pegasus Asia | Singapore | $109.83million |
| Novo Tellus Alpha Acquisition Corp | Singapore | $44.63,000,000 |
| Aquila Acquisition Corp | Hong Kong | $127.82 Million |
Singapore’s slow start to the year would disappoint it. The country had originally planned on drawing SPACs, in order to revive its flagging IPO market.
Hong Kong has, however, taken measures to reduce speculative trading. They have banned retail participation in SPAC trading prior to the point where the merger occurs.
Campling stated that the SPAC climate in Asia is cautious due to the US volatility over the past two years, and the general “slow and steadi wins the race” mentality.
My experience shows that if you can offer Chinese CEOs a simple, quick way to raise capital, they will not be disappointed.
Drew Bernstein
chairman, MBP
The U.S., in comparison, enjoyed a record year with more than $160 billion raised on U.S. exchanges in 2021 — that’s nearly double the amount raise the previous year, according to data from SPAC Research.
But even the red-hot SPAC market in the U.S. seemed to struggle for direction this year.
The U.S. Securities and Exchange Commission has started to crack down on SPACsThe new regulations include a number of rules that address complaints regarding incomplete information or insufficient protection against fraud and conflicts of interests.
The CNBC SPAC Post Deal Index — which comprises SPACs that have completed their mergers and taken their target companies public — tumbled around 20% in January this year, from a February 2021 high. It has since rebounded partially.
Tailwinds to Hong Kong and Singapore
Companies looking to be listed in the SPAC may still find it favorable. Analysts say that Asia has the highest concentration of Asian analysts.
They said that investors may be interested in cashing in on earlier purchases.
Chinese unicorns — or start-ups with at least $1 billion in valuation — are running out of private capital to tap on, and that could drive them to seek SPAC listings in Hong Kong, according to Drew Bernstein, co-founder and chairman at audit advisory firm MBP.
For mainland China businesses looking for capital, a merger of the Hong Kong SPAC may offer an appealing option.
Drew Bernstein
MBP founder and chairman
Bernstein stated that there are more than 300 China-based unicorns. Some of these are far beyond the private capital resources. My experience shows that if you can offer Chinese CEOs a straight-forward, rapid path to capital raising, they will not be disappointed.
A Hong Kong SPAC merge may offer a good option to mainland China businesses that want access to liquidity and capital convertible into dollars, but they are worried about the regulatory and accounting uncertainties associated with a U.S. stock exchange listing.” he said.
Chinese shares of tech have dropped by more than 50% in the last year. The Hang Seng Tech Index in Hong Kong has dropped by more than half compared with a year earlier.
The market was hit by China’s regulatory crackdown as well as ongoing tensions with the U.S. The U.S. Securities and Exchange Commission earlier this year started identifying Chinese companies that could be delisted if they didn’t comply with audit requirements.
Bernstein stated that Singapore may benefit from an “enormous rise” in private equity investments into Southeast Asia.
The region’s favorable demographics will lead to a boom in new growth companies. He said that a merger of some companies with the Singapore SPAC might be an excellent way for them to gain growth capital in a country with strong legal protections.
Hong Kong oder Singapore
CNBC spoke with analysts who said that while Singapore and Hong Kong have traditionally fought for Asia’s financial centre status, each country has its own offering in terms of SPACs.
Campling said that Hong Kong was a better fit for China-based transactions because it is close to the mainland.
The market is larger than Singapore.
Campling said that Hong Kong is more liquid and would therefore be an ideal hunting ground to make larger deals.
In an email, he stated that Hong Kong had seen “the fallout from a harder environment in the US” and suggested that some international funds who were interested in deals listed on HK now want to look for investments in other parts of Asia such as Singapore.
Campling says that the Chinese city wants to be known as a market for high-quality deals rather than attracting a lot of business.
To do so, it has established more stringent listing requirements. The rules allow only high net-worth individuals and institutions to purchase shares in SPACs prior to acquisition. However, SPACs are required to bring in new investors when the merger is completed.
“It looks, generally speaking, as if [Hong Kong]Campling said that Singapore attracts new ventures in the economy, while Singapore has more traditional industries.”
He added that the countries have both “well-funded and highly regarded state-backed financial institution, institutions investment firms, private capital backers and entrepreneurs.”
— CNBC’s Yun Li contributed to this report.
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