Hong Kong Developing SPAC Framework – But Lack of D&O Insurance Could Be Issue

Hong Kong is expected to have its own blank check company listing framework ready in June for public feedback and targets allowing deals to start by the end of this year.

The city is looking at tighter rules for sponsors of special purpose acquisition company listings. Officials are keen to address concerns springing up around the hundreds of publicly traded shell companies that have raised money on New York exchanges with the goal of buying a profitable business down the line.

Hong Kong’s financial chief, Paul Chan, has directed the regulator and the stock exchange to come up with a framework that fits its market as the Asian financial hub seeks to get in on a boom in SPAC deals that has mainly been centered in the U.S. Some of the city’s biggest tycoons, including Adrian Cheng, are preparing to or have raised such funds in the U.S.

One major issue in Hong Kong could become securing liability insurance for SPAC directors and officers against incorrect statements and negligence. Such insurance is already double the cost for many Chinese firms listed in the U.S. because of increased scrutiny and activism in recent years.

For the even smaller SPAC market it’s “almost impossible” to get D&O liability insurance, leaving the Chinese owners exposed to claims.

Even so, companies in Hong Kong are welcoming the new avenue to go public, which has already lured some of the city’s super rich. Horizon Ventures, a firm backed by billionaire Li Ka-shing, this year took its three financial technology holdings — Hippo Enterprises Inc., Doma and Bakkt — public in SPACs deals valued at $10 billion in total.

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