Comparing the SPAC Frameworks in Singapore and Hong Kong

Special purpose acquisition companies (SPACs) have taken the capital markets by storm lately. Operating at the intersection between securities regulation and the law relating to mergers and acquisitions, SPACs are essentially cash shell entities that raise finances through an initial public offering (IPO) of securities. They do so with the sole purpose of scouting, within a limited timeframe, for an appropriate target company with which it would combine in a transaction popularly referred to as a ‘de-SPAC’. This way, the private target company with an operating business could achieve a listing of its securities without undertaking a traditional IPO.

To be sure, SPACs have been in existence in their current incarnation since the early 1990s. They received considerable attention in the ensuing years, until their importance temporarily diminished in the wake of the global financial crisis of 2008. While there has since been a resurgence of SPACs, from 2020 their role in raising funds from the capital markets has taken on an order of magnitude hitherto unimaginable, especially in the United States (US). The clamour for SPAC listings in the US did not go unnoticed elsewhere. Several other jurisdictions took note of these developments and began reviewing their own legal regimes to facilitate SPACs. Among others, attention quickly shifted to the two leading Asian financial centres of Singapore and Hong Kong.

An examination of the developments in these two jurisdictions is interesting for a number of reasons. First, they reacted with alacrity to the recent US developments to capture a part of the market share for SPAC listings. Second, Singapore and Hong Kong have historically competed to attract listings on their stock exchanges, including by introducing new products, with a recent high-profile illustration being the admittance of the dual class share structure. Third, there continue to be considerable similarities in the legal treatment of capital markets transactions in the two jurisdictions due to their common legal heritage.

Both Singapore and Hong Kong initiated market reforms to facilitate the listing of SPACs on their stock exchanges. The Singapore Exchange (SGX) began a consultation process in March 2021 and established a framework by September 2021; the Hong Kong Exchanges and Clearing Limited (HKEX) followed shortly thereafter by initiating its consultation process in September 2021 and putting in place a listing regime for SPACs by December 2021. It is noteworthy that Singapore’s reform efforts began in the midst of the SPAC boom in the US, while Hong Kong’s initiatives commenced after the US market had begun experiencing a dip. In any event, the market has embraced the legal initiatives; as of 31 March 2022, three SPACs have already listed in Singapore, with one listing in Hong Kong (and ten others having filed their documents for registration).

The swift reaction by the regulators in the two Asian financial centres is clearly focused on creating a catchment area for listings by Asian companies or for the establishment of SPACs by Asian sponsors. For example, the Greater China region and Southeast Asia are home to an active start-up sector and house a number of unicorns. In the absence of an effective listing option for using SPACs, companies from this region have hitherto been accessing the SPAC universe in the US for listing their securities. There is also evidence of Asia-based sponsors taking advantage of liquidity to set up SPACs in the US. Moreover, the use of SPACs is also a measure to boost the overall listings on the two exchanges, which have witnessed a decline due to uncertain market conditions in the wake of the pandemic and also a clampdown on Chinese companies undertaking listings.

In this background, the goal of my working paper Special Purpose Acquisition Companies (SPACs): A Discordant Tale of Two Asian Financial Centres is to examine the legal frameworks established by Singapore and Hong Kong to regulate SPACs. It does so by analysing the key features of SPAC regulation, not only in comparison with each other but also by using the US practice as a frame of reference. The principal findings of the paper are that, despite strongly competing for the same piece of the pie, the two financial centres have adopted rather divergent approaches to the regulation of SPACs. While Singapore aims to adhere to the US practice quite closely, apart from imposing additional guardrails for the protection of public shareholders, the Hong Kong regime is far more restrictive and consciously steers clear of the US approach with a view to remaining faithful to the local needs and realities.

Apart from commercial considerations, this somewhat yawning gap in the regulatory strategies is also attributable to differing regulatory philosophies as well as historical events that have coloured the regulatory thought process. For example, in Hong Kong, some insalubrious experiences in dealing with cash shell entities and reverse takeovers have been at the forefront of the framework design that has introduced a great deal of rigidity. Given that both Singapore and Hong Kong have closely observed the US experience (although they have adopted it to varying extents), any further regulatory reforms in the US would arguably have an impact on the trajectory of SPAC structures in the two Asian financial centres.

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore.