Investor
Suitability |
Hong Kong: The subscription and trading of a SPAC's
securities will be restricted to professional investors (PI) only.
At its initial offering, a SPAC must distribute each of its shares
and its warrants to a minimum of 75 PIs, of which 30 must be
institutional PIs. The trading of the shares of the new combined
company after the de-SPAC transaction (the Successor Company) is
open to all investor types.1
In the United States, retail investors may be able to
purchase a SPAC's securities in the offering.
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Assessment of SPAC
Promoter |
Hong Kong: The HKEX will favor SPAC
promoters that demonstrate they have experience:
- managing assets with an average collective value of at least
HK$8 billion over a continuous period of at least three financial
years; or
- holding a senior executive position at an issuer that is, or
has been, a constituent of the Hang Seng Index or an equivalent
flagship index.
The SPAC promoter must also hold a Type 6 (advising on corporate
finance) and/or a Type 9 (asset management) license issued by the
Securities and Futures Commission (SFC) and must hold at least 10%
of the promoter shares. In the United States, rules of the New York
Stock Exchange (NYSE) state that the NYSE may consider, among other
factors, the experience and/or track record of the SPAC promoter
when assessing the suitability for the listing of a SPAC. However,
there are no specified qualifications for SPAC promoters in the
United States.
In the United States, rules of the New York Stock Exchange
(NYSE) state that the NYSE may consider, among other factors, the
experience and/or track record of the SPAC promoter when assessing
the suitability for the listing of a SPAC. However, there are no
specified qualifications for SPAC promoters in the United
States.
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Independent Third-Party
Investment |
Hong Kong: Outside independent PIPE investment should constitute
at least 25% of the expected market capitalization of the Successor
Company. Where the Successor Company has an expected market
capitalization of over HKD1.5 billion, a lower percentage of
between 15% and 25% may be permitted.2 At least one
independent PIPE investor should be an asset management firm with
assets under management of at least HKD1 billion or a fund with a
fund size of at least HKD1 billion.3
In the United States, there is no requirement to obtain PIPE
investments of any particular size, although as a matter of
business practice, PIPE financings are common to validate the
proposed enterprise value of a target.4
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Funds Held in
Trust |
Hong Kong: 100% of the 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 trust
account located in Hong Kong and operated by a trustee/custodian
whose qualifications and obligations are consistent with the
requirements set out in Chapter 4 of the Code on Unit Trust and
Mutual Funds.
In the United States, all net SPAC IPO proceeds are required
to be held in a trust account held by an insured depository
institution.
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Minimum Market
Capitalization |
Hong Kong: SPACs are exempt from market capitalization
requirements and should be assessed on the amount of the funds to
be raised, which is proposed to be HKD1 billion.5
In the United States, there is no minimum fund-raising size
but for listing purposes, a SPAC is required to have a minimum
market capitalization of USD40 million (HKD311.5 million) on the
Nasdaq (Global Market) and USD15 million (HKD117 million) on the
NYSE.
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Deadlines |
Hong Kong: A SPAC must publish the de-SPAC announcement within
24 months of the date of its listing, subject to an extension of up
to six months upon request in certain
circumstances.6
A de-SPAC transaction must be completed within 36 months of the
date of the listing of the SPAC,7subject to an extension
of up to six months upon request in certain
circumstances.8
The U.S. rules generally stipulate that a SPAC must
consummate a de-SPAC, or business combination, transaction within
36 months of its IPO without further extension. However, many
U.S.-listed SPACs voluntarily set a shorter deadline of 24 months
or less.
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Eligibility of De-SPAC
Targets |
Hong Kong: An "Investment Company" as defined under
Chapter 21 of the Listing Rules would not be an eligible de-SPAC
target. In the United States, there are no restrictions on the
types of companies that may be de-SPAC targets, as long as the
target meets the relevant new listing requirements.9
In the United States, there are no restrictions on the types
of companies that may be de-SPAC targets, as long as the target
meets the relevant new listing requirements.
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Size of the De-SPAC Target
|
Hong Kong: A de-SPAC target must have a fair market value of at
least 80% of the funds raised by the SPAC from its initial offering
(prior to any redemptions), to ensure that de-SPAC targets are
businesses with sufficient substance to justify a
listing.10
In the United States, the de-SPAC target is required to be
at least 80% of the proceeds held in trust.
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Listing Requirements
|
Hong Kong: The Successor Company will need to meet all new
listing requirements, including IPO sponsor engagement to conduct
due diligence, minimum market capitalization requirements and
financial eligibility tests, as well as all applicable rules
regarding notifiable transactions and reverse
takeovers.11
The NYSE requires that the Successor Company meet the
minimum share price, market capitalization and the public float
requirements. Full initial listing requirements are applied if the
de-SPAC transaction is determined to be a "back door
listing." For Nasdaq, the Successor Company must meet the full
initial listing requirements applicable to its market segment.
Nevertheless, the SEC review process for the de-SPAC transaction is
faster than that for a traditional IPO.
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Dilution Cap |
Hong Kong: Promoter shares are capped at no more than 20% of a
SPAC's outstanding shares at the closing of its
IPO.12
In the United States, there is no cap on the dilution to the
value of a SPAC investor's shareholdings resulting from the
conversion of the promoter shares and the exercise of SPAC warrants
and promoter warrants, although it is often structured as 20% of
the SPAC IPO shares.13 Therefore, dilution for
shareholders from the conversion of sponsor shares and warrants can
be a problem in U.S.-listed SPACs.
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Shareholder Vote on De-SPAC
Transactions |
Hong Kong: A de-SPAC transaction requires approval by the
SPAC's shareholders at a general meeting. Such shareholders
exclude the SPAC promoter and associates, and any other shareholder
and associates with a material interest in the
transaction.14
SPAC promoters are generally allowed to vote in the United
States.15
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Open Market
Requirements |
Hong Kong: The Successor Company must ensure a minimum public
float of 25% and an adequate spread of holders of its shares of at
least 100 shareholders.16
The NYSE requires 400 "round lot" holders with 1.1
million publicly held shares for each listing. As for a Nasdaq
listing, there should be at least 400 "round lot" holders
but there is no public float requirement.
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Warrants |
Hong Kong: There should be separate trading of SPAC shares and
SPAC warrants from the initial offering date. Warrants must expire
not less than one and not more than five years from the date of
completion of a de-SPAC transaction and can only be exercisable
after the completion of a de-SPAC transaction.17
In the United States, warrants typically expire five years
after the completion of the de-SPAC transaction or on the date of
redemption by the SPAC and are exercisable on the later of 30 days
after the completion of the de-SPAC transaction or 12 months from
the date of the initial offering.
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Redemption
Option |
Hong Kong: Prior to the completion date of the de-SPAC
transaction, holders of SPAC shares are given the opportunity to
elect to redeem their shares at the price at which they were issued
in the SPAC's initial offering, plus accrued
interest.18
SPAC shareholders should only be able to redeem SPAC shares if
they vote against (a) a material change in the SPAC promoter
managing a SPAC or the eligibility and/or suitability of a SPAC
promoter; (b) a de-SPAC transaction; and (c) a proposal to extend
the de-SPAC announcement deadline or the de-SPAC transaction
deadline.19
In the United States, SPAC investors have the right to
redeem their shares regardless of whether they vote in favor of or
against the de-SPAC transaction.
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De-Listing and
Liquidation |
Hong Kong: HKEX will suspend the trading of a SPAC's
securities in the event a SPAC fails to:
- complete a de-SPAC transaction within the deadlines that apply;
or
- obtain the requisite shareholder approval for a material change
in the SPAC promoters within one month of the material change.
The SPAC must, within one month of such suspension, return to
its shareholders (excluding holders of the promoter shares), on a
pro rata basis, 100% of the funds it raised at its initial
offering, at the price at which its shares were issued, plus
accrued interest. The SPAC must liquidate thereafter.
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