Hong Kong's second SPAC deal put on hold, source says, clouding prospects

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HONG KONG (Reuters) – A blank-cheque firm backed by VMS Asset Management has paused plans to go public in Hong Kong due to highly volatile markets, said a person with knowledge of the matter, clouding Hong Kong prospects for special purpose acquisition companies (SPACs).

Vivere Lifesciences Acquisition Corp’s $130 million SPAC share sale, set to have been Hong Kong’s second, is waiting for markets to stabilise before opening its books, said the person, declining to be identified as the information is private.

VMS did not respond to a request for comment.

The pause comes just months after regulators in January allowed blank-cheque companies to list on Hong Kong’s stock exchange, to compete with rival bourses and tap demand for such investment vehicles.

Regulators and bankers had hoped the approval would draw mainland China investors to list SPACs, which raise cash to buy private firms which are then listed through the vehicle.

However, shares of Hong Kong’s first SPAC, Aquila Acquisition Corp, are trading 8.2% below their HK$10 issue price on limited turnover since their March 18 debut.

Eleven SPAC candidates have lodged preliminary filings to list, showed the website of bourse operator Hong Kong Exchanges and Clearing Ltd (HKEX), but bankers believe there will not be a rush of deals until market sentiment improves.

“The timing, the market and overall sentiment is not great for SPACs right now,” said Ben Quinlan, chief executive of financial services consultancy Quinlan & Associates.

“The world is facing a number of major challenges and there is so much uncertainty, such that any company looking to list is going to realise its not an ideal time.”

Hong Kong’s benchmark Hang Seng Index is down nearly 15% in 2022 as major equity markets worldwide endure heightened volatility due to the Russia-Ukraine conflict, coronavirus containment measures in China and rising U.S interest rates.

Hong Kong has stipulated that retail investors – a major portion of the city’s market – cannot buy or sell SPAC stock because of the risky nature of buying a company with no physical assets. Some bankers said that restriction has contributed to lacklustre demand.

The rules also allow professional investors to trade provided they prove to brokers they meet criteria aimed at restricting buying and selling of SPAC shares.

A HKEX spokesman said the exchange was confident about the long-term prospects of the city’s SPAC program.

“The Securities and Futures Commission (SFC) believes the SPAC regime in Hong Kong affords appropriate safeguards while providing sufficient flexibility and incentives for a high-quality SPAC market,” an SFC spokesperson said.

“The SFC will, together with the Hong Kong Stock Exchange, continue to monitor its future.”