The Hong Kong Stock Exchange officially introduced the SPAC mechanism to combat the shell stock policy without relaxation

After major institutions disclosed the main data of the A-share market in 2021, benefiting from the in-depth advancement of the registration system reform, A-share IPOs have achieved normal operation. According to Wind statistics, a total of 524 new A-shares will be listed in 2021, a year-on-year increase of 19.9%.

However, compared with the number of A-share IPOs and the scale of fundraising, the performance of Hong Kong stocks in 2021 will be slightly weaker. Wind data shows that in 2021, the total amount of initial fundraising in the Hong Kong stock IPO market will be 331.44 billion Hong Kong dollars, down 17.16% from 400.14 billion yuan in 2020.

"Hong Kong stock IPOs in 2021 can be described as two days of ice and fire. In the first half of the year, 'big meat signs' appeared frequently, and the profit-making effect of investment increased. After entering the second half of the year, the first day of IPO listings broke one after another, which made the investment sentiment in the market continued to decline. "A person in the capital market commented on the overall performance of Hong Kong stocks.

In the view of this person, although there has been a large-scale break in Hong Kong stock IPOs starting from the third quarter of 2021, the break has also gradually returned the stock price to the normal pricing range.

"In the long run, as the preferred market for the return of Chinese concept stocks, Hong Kong stocks still have investment value. At the same time, with the increasing trend of the return of Chinese concept stocks and the implementation of the SPAC (Special Purpose Acquisition Company) system, it is expected that the Hong Kong stock IPO market will continue in 2022. There will be new growth points," the source said.

The reporter of "China Business News" noticed that after the Hong Kong stock market broke the tide, the market discussion about the SPAC listing mechanism also gradually started. From the concept mention to the official introduction, in just a few months, the Hong Kong Stock Exchange has completed a major promotion of the SPAC listing mechanism. On January 1, 2022, the Hong Kong Stock Exchange, a wholly-owned subsidiary of the Hong Kong Stock Exchange, introduced new rules to establish a new SPAC listing mechanism, and the decision came into effect on that day. This has become another capital market that has introduced a SPAC listing mechanism after capital markets such as the United States and Singapore.

To put it simply, a SPAC is a shell company whose sole purpose is to raise funds through an initial public offering of stocks, and use the proceeds to acquire and merge target companies with operating activities, so as to achieve the purpose of the merged successor company becoming a listed company.

He Zhaofeng, Ernst & Young's Greater China Listing Services Lead Partner, said in response to the reporter's interview that according to the regulations, SPACs need to find a suitable target company and complete the merger within a limited time. The merged company will become an ordinary listed company. Currently, the Hong Kong Stock Exchange The stated period is 36 months.

He Zhaofeng explained that the process from finding the target company to the successor company becoming an ordinary listed company through merger is the De-SPAC stage. "When the above process is successfully completed, the life cycle of the SPAC will also end at the same time. If the target company is not found or the final process is not completed within 36 months, the HKEx will delist it, and then the SPAC will be liquidated. , the funds obtained from the previous fundraising will also be returned to shareholders." He Zhaofeng told reporters.

Based on the unique attributes of SPACs, the Hong Kong Stock Exchange stipulates that investment in SPAC securities is limited to the subscription and trading of SPAC securities by professional investors, which is somewhat different from the relevant regulations in the United States. At present, the United States does not impose restrictions on the identity of investors in the SPAC stage.

"Compared with the US market, there are more retail investors in the Hong Kong market. Since the Hong Kong Stock Exchange has only recently officially introduced the SPAC mechanism, in the short term, it will take some time for retail investors to understand this new concept and control risks. In order to protect the majority of retail investors The rights and interests of investors, the Hong Kong Stock Exchange restricts retail investors to participate in the trading of SPAC securities, the purpose is also to reduce the risk of SPACs to the Hong Kong capital market." The above-mentioned capital market person said. In public, Ou Guansheng, CEO of HKEX Group, also said that the addition of a SPAC listing mechanism by HKEX will further consolidate Hong Kong's status as the world's leading international financial center.

"We hope that through the introduction of the SPAC listing mechanism, experienced and reputable SPAC sponsors will be allowed to identify emerging and innovative industry companies as M&A targets, and support some promising new stars to thrive." Ou Guansheng said.

From the perspective of capital market participants, with the continuous trend of Chinese mainland and overseas companies listing in the United States through De-SPAC, the Hong Kong Stock Exchange hopes to attract relevant companies to list in Hong Kong by introducing the SPAC system. The path is also questionable.

"In fact, both investors and regulators are more cautious about backdoor listing parties. Judging from the details of the policies released so far, the introduction of SPACs is mainly in line with market needs. It is expected that this mechanism will be temporarily implemented in Hong Kong stocks." Ernst & Young Li Kang, partner of audit services, introduced.

In his view, future regulators will also regard De-SPAC as a new listing application, which is an important condition for ensuring the sustained and high-quality development of Hong Kong's capital market.

Previously, the Hong Kong Stock Exchange has revised the listing regulations several times to combat violations such as shell formation and maintenance, and has successively introduced a series of measures to strengthen supervision, including amendments to the anti-takeover regulations and delisting mechanisms, as well as the introduction of regulations on the adequacy of business for listed companies. Backdoor listings and shell activity have been hit hard by these moves.

In the opinion of the above-mentioned capital market participants, after the implementation of these series of measures, the Hong Kong Stock Exchange has gradually become effective in cracking down on shell stocks. In this context, the Hong Kong Stock Exchange will not easily give up its regulatory achievements due to the introduction of the SPAC listing system. "Preventing companies from evading relevant listing regulations in different ways is a line of defense that the Hong Kong Stock Exchange must guard when introducing the SPAC listing system," the person added.