Hong Kong set to be world's biggest SPAC market outside US  

by Eric Weiss in November 28th, 2020

Special purpose acquisition corporations, publicly listed blank-cheque vehicles funded through an IPO, are already proving popular with the financial hub's financial sector

(ATF) Financially, 2020 is likely to be widely remembered as the year of the special purpose acquisition corporation, and for good reason, as at least 182 SPACs have filed for an initial public offering, raising a total of $65.7 billion.

This figure represents more than 90% of total IPOs filed in the United States, more than 80% of total US IPO gross proceeds in 2020. The total raised so far this year is nearly four times that of all of 2019.

A SPAC is simply a publicly listed blank-cheque vehicle funded through an IPO, whereby the capital raised can be used to merge with an operating company that thereby becomes publicly listed.

SPACs have been responsible for bringing some of the hottest stocks to market this year, including online betting firm DraftKings, billionaire investor Richard Branson's space tourism company Virgin Galactic Holdings and electric- and hydrogen-powered vehicles venture Nikola.

Not everyone is a fan. Some critics say SPACS squander funds on overpriced targets. This month, a report by short seller Carson Block’s Muddy Waters slammed the SPAC frenzy, noting: “A business model that incentivises promoters to do something — anything — with other people’s money is bound to lead to significant value destruction on occasion."

While most SPACs are headquartered and focused on targets in the United States, Hong Kong-based and Asia-focused SPACs have recently emerged as the second-largest geographical area to embrace the booming market.

“I think that the investment community in Hong Kong has a great perspective not only on opportunities in Hong Kong and China but also on the rest of Asia, a region rich with targets that could be attractive for a SPAC,” Drew Bernstein, co-managing partner of MarcumBP, the due diligence and forensic accounting services firm, told the Cyberport Venture Capital Forum in Hong Kong on November 13.

Heavy-hitters embrace model

A number of Hong Kong’s financial heavy-hitters have already jumped on the SPAC bandwagon, such as Antony Leung, a former Hong Kong financial secretary and Blackstone executive, who launched New Frontier, a $1.5 billion SPAC. Citic Capital, meanwhile, launched a SPAC in February.

Most recently, Richard Li’s Bridgetown Holdings, Maso Capital’s Duddell Street Acquisition Corporation and Malacca Straits have raised a combined $875 million through their respective IPOs.

Given the economics, with $175 million in trust to spend at the front end of an acquisition, Duddell Street Acquisition Corporation in particular shows a strong likelihood of acquiring a true high-growth Asia based firm poised for imminent unicorn status.

Likely looking to acquire a company in the $600 million to $1 billion valuation range, Duddell Street is a compelling Asia-focused SPAC with most promise given the average valuations of available public-ready private companies in the region.

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