Analysis

Hong Kong and Singapore lay cautious path to tackle the SPAC bubble

, Bloomberg Quint

Hong Kong and Singapore are trying to get in on the boom in blank check company listings, while safeguarding investors from what some say is a bubble about to burst.

Authorities in the Asian financial hubs are mulling tighter frameworks than in the U.S. for listings of special purpose acquisition companies. The U.S.-led dealmaking boom has raised about $100 billion so far this year even though it’s now showing signs of fizzling amid increased scrutiny by regulators.

“They are a bit too late to the party so it’s good that they are cautious,” said Justin Tang, head of Asian research at United First Partners in Singapore. “The euphoria in this space means that caution is highly warranted.”

Pushed by the government, Hong Kong is said to target having its regime in place by the end of the year. The plan, which is still being formulated, would set special conditions for sponsors of SPACS, including having a track record of managing money, and that SPAC acquisitions will have to meet the existing standards for initial public offerings.

It’s in a race with Singapore, which is now further along after last week releasing a consultation paper on its plan. Singapore Exchange Ltd.’s regulatory arm is proposing a minimum S$300 million ($225 million) market capitalization. The U.S. has no such floor. It’s also proposing stricter criteria for warrants and share redemptions.

Investors and dealmakers in both cities are now questioning whether the tighter scrutiny will hamper their ability to attract SPACs.

Marcia Ellis, a partner in Hong Kong at Morrison & Foerster LLP, said too many “safeguards” in the framework “could kill flexibility, which may render it unattractive to SPAC sponsors.”

Singapore’s minimum market value implies a valuation of the target company of more than $1 billion, which is relatively hard to find among Southeast Asian companies, said Stefanie Yuen Thio, joint managing partner at legal firm TSMP Law Corp.

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