Is the SPAC boom over? Asia-US deals appear to be fading

It’s been a slow and cautious start for the SPACs that have launched in Hong Kong and Singapore in recent months.

George Pink | Getty Images, Reuters

It’s been a slow and cautious start for SPACs launching in Hong Kong and Singapore in recent months, in stark contrast to last year’s SPAC boom in the US, which also fizzled out.

SPACs are special purpose acquisition companies. They are shell companies that raise capital in an initial public offering and use the cash to merge with a private company in order to take it public, usually within two years.

Only one SPAC launched in Hong Kong in the first quarter and raised $128 million, while three launched in Singapore, grossing a total of $334 million, according to data analytics firm Refinitiv.

“This likely reflects investors happy to play a patience game, rather than retail investors in the US who in recent years have chased higher SPACs in [the] I expect them to acquire a ‘hot start’,” said Neil Campling, head of technology, media and telecommunications research at Mirabaud Equity Research.

Among the three SPACs listed in Singapore are Vertex Technology Acquisition and Pegasus, which last traded below their offer price of 5 Singapore dollars ($3.60).

In Hong Kong, Aquila Acquisition made its SPAC debut in March, which was also trading below its offering price of HK$10 ($1.27). Hong Kong still has another 10 SPAC applications as of mid-March, according to its stock exchange.

SPACs listed in Hong Kong and Singapore

SPACE Exchange revenue raised
Vertex Technology Acquisition Corporation Singapore $125.87 million
asian pegasus Singapore $109.83 million
Novo Earth Alpha Acquisition Corp Singapore $44.63 million
Aquila Acquisition Corporation Hong Kong $127.82 million

The slow activity at first would be an initial disappointment for Singapore, which had been set to take out SPAC in hopes of reviving its declining IPO market.

Hong Kong, on the other hand, has taken steps to curb speculative trading by banning retail participation in SPAC trading before the stage where the merger takes place.

“I would describe the SPAC environment in Asia as cautious given the volatility in the US over the past two years and a general practice of ‘slow and steady wins the race’ mentality,” Campling said.

In my experience, if you can offer a Chinese CEO a direct and quick path to raise capital, there will be no shortage of takers.

drew bernstein

president, MBP

The US, by comparison, enjoyed a record year with more than $160 billion raised on US exchanges in 2021, that’s nearly double the amount raised the year before, according to data from SPAC Research.

But even the red-hot SPAC market in the US seemed to be struggling to find direction this year.

The US Securities and Exchange Commission has begun to crack down on SPACs, with a series of new rules addressing complaints about incomplete information and insufficient protection against conflicts of interest and fraud.

The CNBC SPAC Post Deal Index, which comprises SPACs that have completed their mergers and made their target companies public, fell about 20% in January this year, from a February 2021 high. However, it has since rebounded. partially.

Tailwinds for Hong Kong and Singapore

Still, the situation can still improve for companies seeking a listing on SPAC. in Asia, according to analysts.

Investors may also be looking to cash in on their earlier purchases, they said.

Chinese unicorns, or start-ups with a valuation of at least $1 billion, are running out of private capital to tap into, and that could lead them to seek SPAC listings in Hong Kong, according to Drew Bernstein, co-founder and chairman of audit. MBP consultant.

A Hong Kong SPAC merger may be an attractive option for mainland Chinese companies seeking access to capital…

drew bernstein

President and Founder, MBP

“There are more than 300 unicorns based in China, some of which are beyond the capacity of private capital sources,” Bernstein told CNBC. “In my experience, if you can offer a Chinese CEO a direct and fast path to capital, there will be no shortage of takers.”

“A Hong Kong SPAC merger may be an attractive option for mainland Chinese companies seeking access to dollar-convertible capital and liquidity, but are concerned about the accounting and regulatory uncertainties involved in a US listing at this time,” he added.

Chinese tech stocks have plummeted over the past year. Hong Kong’s Hang Seng Tech Index is down more than 50% compared to a year ago.

The market has been hit by a regulatory crackdown from China, as well as ongoing tensions with the US. Earlier this year, the US Securities and Exchange Commission began identifying Chinese companies that could be delisted. from the list if they did not meet the audit requirements.

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As for Singapore, it may “catch the tailwind” of the “huge surge” in private equity investment in Southeast Asia recently, Bernstein said.

“We expect a boom in growth start-ups with favorable demographics and digital adoption in the region. For some of them, a merger with a Singapore SPAC could be a great way to access near-hope growth capital in a market with strong legal protections,” he said.

Hong Kong or Singapore?

Hong Kong and Singapore traditionally compete for status as Asia’s financial hub, but each has a different offering when it comes to SPACs, analysts told CNBC.

Hong Kong would be a more natural choice for China-based deals due to its proximity to the mainland, Campling said.

It is also a larger market compared to Singapore.

“Hong Kong is a more liquid market and that would be a natural hunting ground for bigger businesses,” Campling said.

“However, Hong Kong has seen the fallout from a more difficult environment in the US, so some international funds that may have been interested in HK-listed deals may now prefer to seek investment elsewhere. areas of Asia, such as Singapore,” he said in an email.

The Chinese city is also presenting itself as the market for quality businesses, rather than attracting a lot of business, according to Campling.

To do this, it has established more stringent listing requirements. Under those rules, in addition to allowing only institutional and high net worth individuals to buy shares in SPACs before the acquisition stage, SPACs must also attract new investors at the time of the merger.

“Generally speaking, it seems as if [Hong Kong] is attracting new economic companies and Singapore more traditional industries,” said Campling.

Still, both countries will have “well-funded and highly regarded” state-backed financial institutions, institutional investment firms, private equity backers and entrepreneurs, he added.

— CNBC’s Yun Li contributed to this report.

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