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Hong Kong Stock Exchange Announced New Listing Regime for SPAC

On December 17, 2021, the Stock Exchange of Hong Kong Limited (the Exchange) announced new listing regime for special purpose acquisition companies (SPAC).  These new rules will take effect on January 1, 2022.  This regulatory update reflects the Exchange’s commitment to remain an attractive, competitive and diversified capital-raising market in the region.

Previously on September 17, 2021, the Exchange published consultation papers (see here) on proposed rules on SPAC to solicit feedback from stakeholders.

The Exchange’s announcement on December 17, 2021 (see here) include:

  1. a summary of the key differences between the proposals set out in the Exchange’s consultation paper dated September 17, 2021 and the requirements to be implemented:

  2. link to a 154-page report on the conclusions reached with respect to the aforesaid consultation papers.  Appendix IV of the report sets forth the actual new rules of this new regime for SPAC, and Appendix V of the report is a guidance letter on SPAC.  Both the new rules and the guidance letter will become effective on January 1, 2022.

The new rules define a SPAC as an issuer that has no operating business and is established for the sole purpose of conducting a transaction in respect of an acquisition of, or a business combination with, a target (a De-SPAC Transaction), within a pre-defined time period, to achieve the listing of the target.

We have listed below a few rules of the new regime for the sole purpose of giving you a quick overview.

Formation 

  • A SPAC Promoter is a person who establishes a SPAC and/or beneficially owns Promoter Shares issued by a SPAC.

  • All SPAC Promoters must meet the Exchange’s suitability and eligibility requirements.

  • Promoter Shares and Promoter Warrants issued exclusively to SPAC Promoters will not be eligible for listing.

  • a SPAC board is required to include at least two Type 6/Type 9 SFC-licensed individuals (one of whom must be a director representing the SFC Licensed Promoter).

Listing

Initial Offering

  • Fund raising amount must be at least HK$1 billion.

  • Issue price must be at least HK$10.

  • Subscription for and trading of a SPAC’s securities (before a De-SPAC Transaction) will be restricted to professional investors only.

  • Each type of SPAC securities (shares and/or warrants) must be distributed to at least 75 professional investors, of which 20 must be Institutional Professional Investors.

Escrow

  • 100% of gross proceeds of a SPAC’s initial offering (excluding proceeds raised from the issue of Promoter Shares and Promoter Warrants) must be held in a ring-fenced escrow account domiciled in Hong Kong and operated by a qualified trustee/custodian (the Escrow Account).

  • Funds held in the Escrow Account must not be released other than to (1) meet redemption requests of SPAC shareholders; (2) complete the De-SPAC Transaction; or (3) return funds to SPAC shareholders when a De-SPAC Transaction cannot be completed before deadline.

  • Interests or other income earned on funds held in the Escrow Account may be used by a SPAC to settle its expenses, and SPAC Promoters are to bear all expenses in relation to establishing and maintaining the SPAC.

Redemption Option

  • SPACs must provide shareholders with the opportunity to redeem all or part of their holdings of SPAC shares (for an amount per SPAC share which must be not less than the price at which such shares were issued at the SPAC’s initial offering without interest) when there is a shareholder vote on: (1) a material change in the SFC Licensed Promoter; or the SPAC Promoter who controls 50% or more of the Promoter Shares, or in the absence of which, the single largest SPAC Promoter; (2) a De-SPAC Transaction; or (3) a proposal to extend the De-SPAC Transaction deadline.

  • Shareholders may redeem their shares irrespective of how they cast their vote and no redemption limit may be imposed.

Liquidation and Delisting

  • Announcement of the finalization of the terms of a De-SPAC Transaction must be published within 24 months of the date of SPAC’s initial listing.

  • A De-SPAC Transaction must be completed within 36 months of the date of SPAC’s initial listing.

  • SPAC may request the Exchange for a deadline extension upon obtaining approval of an extension of either of the above De-SPAC deadlines by an ordinary resolution of its shareholders at a general meeting (on which the SPAC Promoters and their respective close associates have abstained from voting). The maximum extension will be six months.

  • The Exchange will suspend trading of a SPAC’s securities if it fails to announce or complete a De-SPAC Transaction within applicable deadlines (including any extensions granted) or fails to obtain requisite shareholder approval for a material change in SPAC Promoters within one month of the change.

  • Within one month of such suspension, SPAC must return funds to its shareholders (excluding holders of Promoter Shares) on a pro rata basis, for an amount per SPAC share not less than the price at which such shares were issued at the SPAC’s initial offering without interest.

  • After returning funds to its shareholders, the SPAC must liquidate. The Exchange will automatically cancel the SPAC listing upon completion of its liquidation.

Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XI, Number 364
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About this Author

Michael Zhang, Intellectual Property, Antitrust, Attorney, Sheppard Mullin, law
Associate

Michael Zhang is an associate in the Corporate Practice Group, Antitrust Practice Group and the Intellectual Property Practice Group in the firm's Shanghai office.  He has a deep understanding of China’s legal system and business practices. 

Mr. Zhang has broad experience in the areas of corporate law, antitrust law and intellectual property law in China.

He has represented many U.S. and European clients in a wide range of industries with respect to their mergers and acquisitions, joint venture projects and operations...

86.21.2321.6000
Ruiqi Guo Attorney Corporate Law Sheppard Mullin Shanghai
Associate

Ruiqi Guo is an associate in the Corporate Practice Group in the firm’s Shanghai office. 

Areas of Practice

Ruiqi’s practice focuses on private equity, venture capital, restructuring and other corporate matters. Ruiqi assists in a variety of China-related international transactions, private equity investments, and general corporate matters, and also assists with regard to company formation and fund formation.

86-21-2323-6033
Yuanmei Lu Corporate Attorney Sheppard Mullin Shanghai, China
Associate

Yuanmei Lu is an associate in the Corporate Practice Group in the firm’s Shanghai office. 

Areas of Practice

Yuanmei practices equity financing and fund formation.  Her experience includes representing institutional investors in connection with their acquisition and financing of technology, media and telecommunications companies, as well as advising emerging companies and venture-backed companies through multiple rounds of financing.  Yuanmei also focuses her practice in the formation and operation of domestic and international...

86 21-2321-6036
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