Just after the Spring Festival, the Hong Kong Stock Exchange has received the fourth application for the listing of SPAC, and the wind of SPAC has finally reached the Eastern Hemisphere. Hong Kong stocks SPAC, which has been planned for a year, has officially entered the landing stage.

For Chinese companies to be listed, there is another important listing path. This is an era when all roads lead to Rome, as long as you want to go public, there is always a way for you!

SPAC is an acronym for "special purpose acquisition company". Different from the traditional IPO listing, SPAC is a capital operation mode in which professional investors first set up a shell company and raise funds on the stock market, and then merge and integrate the unlisted entity enterprises. SPAC has become popular in US stocks in the past two years, and SPAC contributed 60 per cent of US IPO in 2021.

2021 is the most active year for global IPO in the past 20 years, but the Hong Kong Stock Exchange, which has been slow to open the listing of SPAC, has lagged behind. Only 97 new shares were listed in 2021, a decrease of 34% from 2020, and for the first time since 2012, the amount of IPO raised fell out of the top three in the world. The brave HKEx quickly followed up with the launch of the SPAC listing mechanism, which came into effect on January 1, 2022.

What is the origin of the four SPAC?

Since Aquila Acquisition Corporation submitted its listing application on January 17, 2022, Interra Acquisition Corporation, Trinity Acquisition Holdings Limited, Tiger Jade Acquisition Company and other SPAC have also submitted their forms one after another for a short period of more than half a month.

The four SPAC sponsors have strong per capita strength, and China Merchants International, Li Ning Co. Ltd., Chunhua Capital and Agricultural Bank of China International have become the first batch of crab eaters.

Interra

Interra AcquisitionCorporation (hereinafter referred to as Interra) is jointly launched by Chunhua Capital and Agricultural Bank of China International, with a stake ratio of 6:4.

Among them, Agricultural Bank of China International is not only the sponsor of Interra, but also one of the co-sponsors, belonging to eating more than one fish. Agricultural Bank of China International is an investment banking platform set up by Agricultural Bank Of China of China in Hong Kong. Its subsidiary Agricultural Bank International manages more than 70 funds with a total subscription of more than 100 billion yuan.

Chunhua Capital was founded by famous economist Hu Zulu. in the past, Chunhua Capital has invested in a number of well-known enterprises, such as BABA, XPeng Inc., Byte Jump, Mei Zanchen China and so on.

Interra is already the second SPAC launched by Chunhua Capital. In January 2021, Chunhua Capital launched Primavera Capital Acquisition Corporation, a SPAC company in the United States, which raised $414 million. At present, Primavera CapitalAcquisition Corporation is still in the process of finding targets for mergers and acquisitions.

Trinity

Trinity AcquisitionHoldings Limited (hereinafter referred to as Trinity) is co-sponsored by Li Ning Co. Ltd., Lane Capital and Astrapto, which hold 33%, 42% and 25% of the issued Class B shares, respectively. Backed by sporting goods giant Li Ning Co. Ltd., Trinity is targeting consumption, saying it will look for global consumer lifestyle companies in China that have strong growth potential and can benefit from the operational expertise and capabilities of sponsors and management teams.

Among the three sponsors, Li Ning Co. Ltd. does not need to elaborate, and the other two private equity firms are also very professional and have a good record in the fields of sports and consumption.

Lane Capital is a Hong Kong PE with assets under management of more than HK $9 billion. Lane Capital, which has mostly invested in the consumer sector in the past, acquired the famous British leather shoes brand Clarks in 2021. In sports, Lane Capital acquired a 31.05% stake in Serie A club Inter Milan in 2019, making it the second largest shareholder after SUNING.

Astrapto, a private equity firm founded in 2021, is also registered in Hong Kong. Zhou Zhiyang, its managing partner, worked at Goldman Sachs Group for 12 years before founding Astrapto, and was co-director of Goldman Sachs Group Asian Special assets Investment Group. His investment cases during Goldman Sachs Group include keep, WH Group Limited, Tuhu, Haiwang Xingchen and so on.

In fact, this is not the first time Li Ning Co. Ltd. and Lane Capital have tried SPAC. As early as January 2021, Li Ning Co. Ltd. and en Capital jointly founded Trinity Acquisition Corporation and applied to be listed on the New York Stock Exchange, which is also aimed at global consumer and leisure companies. But the SPAC didn't go public in the end.

TigerTrade

Tiger JadeAcquisition Company (hereinafter referred to as Tiger Jade) is initiated and established by Taixin Capital and Longshi Capital. This is a SPAC that specializes in the healthcare industry and matches the background of the sponsors.

Taixin Capital is Tigermed's private equity fund. Tigermed is one of the top 10 clinical CRO companies in the world. It is currently listed in Shenzhen and Hong Kong with a market capitalization of more than 100 billion yuan. Because of its unique resource advantages, it is the industry practice for CRO to make biomedical investment, and Tigermed is no exception, and previously announced contributions to Taixin Capital's US dollar fund.

By contrast, Longshi Capital has a weak resume in the field of biomedicine. Longshi Capital was registered in Hong Kong in 2015. The main founder, Dhanin Chearavanont, has previously been known as the "networking king" of the music industry, mainly in the music industry. He was the head of Sina Music in his early days and left Sina in 2012 to start Ocean Music. In 2016, Ocean Music merged with QQ Music, and Dhanin Chearavanont became co-president of Tencent Music. Tencent Music went public in 2018 and Dhanin Chearavanont resigned from Tencent Music in 2019.

Longshi Capital's star investment cases since its establishment include Tencent Music, JD Logistics, Inc. and so on. Its health-related project is JD Health, which will be listed in Hong Kong in 2020.

Aquila

Aquila AcquisitionCorporation (hereinafter referred to as "Aquila") is initiated by China Bank International Asset Management Co., Ltd., which is wholly owned by China Bank International, which is an overseas integrated financial platform under China Merchants Bank.

China Bank International currently has a private equity business team of more than 100 people. Since its establishment in 2014, China Bank International has invested in more than 150 companies covering various new economy industries, including Ningde Times, Meituan Dianping and Burning Rock Biotech Ltd..

It should be pointed out that the above investment target areas are not mandatory, the four SPAC do not make rigid regulations on the investment field, in theory, we can look for M & A targets in any industry.

The biggest limit is time. According to the regulations of the Hong Kong Stock Exchange, these SPAC companies must find and announce the targets of mergers and acquisitions within two years after listing and complete the mergers and acquisitions within three years. (with the approval of the shareholders' vote and the HKEx, the extension may be extended for up to half a year)

How to play SPAC with VC/PE

SPAC has a history of more than 30 years in the United States. After 2020, it suddenly became popular and replaced the traditional IPO in a short time and became the main way of listing American stocks. There were 1033 IPO cases in the United States in 2021, of which 613 were SPAC.

For the professional investment firm that initiated the establishment of SPAC, the process of launching an SPAC looks similar to setting up an M & A fund. It's just that SPAC is publicly listed in the secondary market, and it has realized the combination of "investment" and "retreat"-mergers and acquisitions are listed. So it is not surprising that the SPAC of all four Hong Kong stocks is initiated by private equity firms. In US stocks, VC/PE is also the protagonist of playing SPAC.

In addition to directly initiating SPAC, VC/ PEs can also participate in SPAC in another way, that is to make the invested companies listed in the form of mergers and acquisitions by SPAC.

For this new thing, some investors told China Investment Network that at present, it is still "wait and see", but we must pay attention to it. At present, SPAC is an important supplement to the existing IPO, which may be beneficial to the listing of small and medium-sized enterprises.

PricewaterhouseCoopers previously released a report predicting that 1015 SPAC companies are expected to list in Hong Kong in 2022, raising about HK $20 billion to HK $30 billion. None of the four Hong Kong stock SPAC listed on the table has yet to determine the amount of capital raised, but the HKEx stipulates that the total amount of funds raised in the initial public offering of SPAC will be at least HK $1 billion. The SPAC of the HKEx has just been born, and the future remains to be seen.

For domestic companies, listing through SPAC is subject to the same regulatory procedures. In December 2021, the CSRC issued a note on the measures for the Administration of overseas issuance of Securities and listing by domestic Enterprises (draft for soliciting opinions). The article clearly points out that for overseas listing in multiple places, and overseas listing through backdoor listing and SPAC listing, the filing procedures shall be carried out in accordance with the requirements of initial public offering.

For the proposed listed companies, there are three biggest attractions of SPAC: the first is fast, the second is certain, and the third is simple. As long as you can find the shell SPAC and negotiate the price with the sponsors, you can list. From this point of view, SPAC is currently the lowest threshold for listing.

The price is that investors who buy SPAC shares will face higher risk. From the experience of US stocks, the share price of SPAC tends to fluctuate sharply when announcing the subject matter of M & A. if the target company of the proposed merger is of excellent quality, it will cause the stock price to rise sharply, otherwise it will fall sharply, and some people will describe it as an "open blind box".

Therefore, compared with the open SPAC listing markets such as Singapore and the United States, the HKEx has more stringent regulations on investor qualification, promoter qualification and listing scale. For example, before SPAC completed the M & A deal, HKEx only allowed professional investors to invest, with trading units and subscriptions of at least HK $1 million.

For small and medium-sized enterprises, the liquidity problem of Hong Kong stocks is already more prominent, and it remains to be seen whether this threshold will affect the liquidity of SPAC.

Huatai Research Institute believes that SPAC, as a supplement to the traditional listing method, will provide issuers with new options in a volatile market environment, which will help the Hong Kong market and HKEx maintain a comprehensive competitive advantage. The decline of market uncertainty and the landing of SPAC may boost the Hong Kong stock IPO market to some extent. The liquidity environment and whether SPAC can find high-quality target companies may also affect the long-term prosperity of Hong Kong stock SPAC.