SPAC Special study IV: Hong Kong Market rules VS Singapore Market rules

On September 2, 2021, the Singapore Exchange (SGX) officially issued the main board listing rules for special purpose acquisition companies (SPAC). The rule will enter into force on September 3, 2021. Then, on December 17, 2021, the Hong Kong Stock Exchange also announced the formal introduction of a new SPAC listing mechanism. Hong Kong has become another capital market in Asia to use the SPAC mechanism in recent years after South Korea, Malaysia and Singapore. Hong Kong and Singapore are both Asian financial centers, and they have introduced the SPAC listing mechanism at the same time, so what is the difference between the SPAC rules of the two places? This article will find out by comparing the SPAC listing rules of the two exchanges. For a detailed introduction of the SPAC mechanism and the interpretation of the Hong Kong SPAC rules, please refer to our previous articles: "one of the special studies on SPAC: the past and present lives of SPAC" and "the second special study of SPAC: interpretation of the listing mechanism of Hong Kong SPAC". For a comparison between the Hong Kong SPAC rules and the American SPAC rules, please refer to "SPAC Special study III: Hong Kong Market rules VS American Market rules".

Comparison of SPAC listing rules between Hong Kong and Singapore

We will continue to sort out and compare the main contents of the SPAC rules of the Stock Exchange and SGX in the context of the life cycle of SPAC for reference.

1 the establishment stage of SPAC

1.1 SPAC sponsor qualification

(1) Stock Exchange

SPAC sponsors must meet the eligibility and eligibility requirements. At least one SPAC sponsor of SPAC must hold a category 6 (advising on institutional financing) and / or category 9 (provision of asset management) licence issued by the Hong Kong Securities and Futures Commission and hold at least 10 per cent of the sponsors' shares.

The director nominated by the SPAC sponsor must be an officer of the SPAC sponsor (whether or not he holds a SFC licence) and must represent the sponsor; if the sponsor is a natural person, that person must be a director of SPAC. At the time of the listing of SPAC and during its lifetime, at least 2 members of the board of directors of SPAC must be category 6 or category 9 SFC licensees (including a director representing the licensed SPAC promoters).

(2) SGX

In assessing the suitability of SPAC for listing, SGX takes into account the past track record and reputation of SPAC's founding shareholders as well as the experience and expertise of its management team.

1.2 Investor qualification

(1) Stock Exchange Before the completion of the SPAC M & A transaction, only professional investors (i.e. institutional professional investors and individual professional investors) subscribe for and buy and sell SPAC securities. After the merger and acquisition of SPAC, the sale and purchase of shares in the successor company is not subject to such restrictions. SPAC shall each distribute SPAC shares and SPAC warrants to at least 75 professional investors, including 20 institutional professional investors, and institutional professional investors must hold at least 75 per cent of the outstanding SPAC shares.

(2) SGX

There are no restrictions similar to those of the Stock Exchange.

2 SPAC listing stage

The Stock Exchange

Singapore Stock Exchange

SPAC fund-raising scale

The total amount raised in the IPO is not less than 1 billion Hong Kong dollars (about US $128 million).

SPAC has a market capitalization of S $150 million (about US $112 million).

Minimum number of public shareholdings

At least 75 professional investors, of whom at least 20 must be institutional investors and must hold at least 75% of the securities.

At least 25 per cent of the issued shares are held by 300 public shareholders.

Issue price of SPAC shares

The issue price of each SPAC share is not less than HK $10.

Not less than S $5 per share or unit.

Transaction arrangement

SPAC must apply for the listing of SPAC shares and SPAC warrants, which are bought and sold separately from the date of initial listing.

A dual class share structure shall not be adopted in the initial public offering.

Minimum investment of sponsors

At least one sponsor is a No. 6 or No. 9 license company and holds at least 10% of the sponsors' shares.

According to SPAC's market capitalization, the share can be divided into 2.5% Murray 3.5%.

Dilution upper limit

The upper limit of the total number of shares of the sponsors: the shares of the sponsors shall be capped at 20% of the total number of shares issued by SPAC at the time of IPO. After the initial merger and acquisition of SPAC, HKEx may consider allowing a further issue of up to 10 per cent of the sponsors' shares (that is, the commission portion) if a series of requirements are met, including that the successor meets the set performance targets. As a result, the total number of sponsors' shares is limited to 30 per cent of SPAC's issued shares at the time of the initial public offering.

Dilution limit of warrants: if the SPAC warrants are fully exercised, the number of SPAC shares issued as a result of the exercise shall not exceed 50 per cent of the number of shares issued at the time of exercise (including the shares of the sponsors of SPAC).

The free shares available to sponsors at the time of SPAC listing shall not exceed 20 per cent of the initial public offering shares.

The dilution limit of warrants is 50% of the issued share capital.

Merger and acquisition time limit

SPAC must find a suitable M & A target and complete the M & A transaction within 36 months. Under special circumstances, it may apply to the shareholders' meeting and the Stock Exchange for an extension of up to 6 months.

SPAC must complete the business merger within 24 months from the date of listing, with an extension of up to 12 months.

Merger and acquisition time limit

SPAC must find a suitable M & A target and complete the M & A transaction within 36 months. Under special circumstances, it may apply to the shareholders' meeting and the Stock Exchange for an extension of up to 6 months.

SPAC must complete the business merger within 24 months from the date of listing, with an extension of up to 12 months.

3 SPAC M & A transaction stage

3.1 SPAC merger and acquisition standards and other requirements

The Stock Exchange

Singapore Stock Exchange

SPAC audit standards for M & A transactions

The successor company surviving after the initial merger of SPAC is required to comply with all the new listing requirements (including the minimum market capitalization requirement and the financial eligibility test) under the listing rules of the Stock Exchange.

The successor company formed as a result of the SPAC M & A transaction must meet the requirements of the initial public offering.

Approval of SPAC M & A transactions

The merger and acquisition transaction of SPAC shall be confirmed by the approval of SPAC shareholders at the general meeting of shareholders, and the holding of the general meeting of shareholders shall not be replaced by the written approval of shareholders.

SPAC sponsors and their close contacts must waive their voting rights.

The merger and acquisition of SPAC shall be subject to the approval of the following approval by more than half of the independent directors of: (a) and the approval of (b) shareholders by ordinary resolution.

In voting on the merged business, the founding shareholders, the management team and their associates shall not exercise the voting rights of the shares acquired prior to or at that time at nominal consideration or non-consideration before or at the time of the SPAC initial public offering.

If the business merger is a "stakeholder transaction" within the meaning of the listing manual of (a) Singapore Exchange or (b) conducts with the founding shareholders, members of the management team and / or their respective contacts, the affiliated shareholders and directors shall avoid voting and the shareholders' circular must contain the opinion of the independent financial adviser and the SPAC audit committee to indicate that the interests of SPAC and its minority shareholders have not been infringed.

Financial adviser / IPO sponsor

The successor company must appoint at least one sponsor to assist it in its application for listing and conduct due diligence review by the sponsor. SPAC must formally appoint an IPO sponsor no later than two months before the listing application date. After putting forward the proposal for the initial merger and acquisition of SPAC, SPAC will have to submit an application for listing.

SPAC is required to appoint a financial adviser, the issuance manager in the sense of the SGX listing manual, to advise on the initial merger. Financial advisers shall comply with the due diligence guidelines issued by the Singapore Banking Association when conducting due diligence on business mergers.

The Nature of SPAC M & A Target

Investment companies (as defined in Chapter 21 of the listing rules) shall not be the targets of SPAC mergers and acquisitions, and there are no restrictions on other types of companies, provided that such companies comply with their applicable new listing requirements.

There are no special rules.

But the SGX made it clear that the SPAC deal could involve life technology companies as well as mining, oil and gas companies.

The scale of SPAC M & A targets

The fair market value of SPAC's merger targets must be up to 80 per cent of the money raised by SPAC's initial public offering.

The fair market value of the SPAC merger target must be at least 80 per cent of the proceeds held by the trust.

Lock-up period

Within 12 months from the date of completion of the special purpose M & A transaction, the promoters of SPAC shall not sell any securities of the inherited company beneficially owned by them as shown in the listing documents.

Within the first six months after the listing of the successor company, the controlling shareholder shall not sell its shares, and during the second six-month period, it shall not sell its shares so as to affect its holding position.

The main board of the SGX shall adopt a sales restriction period of 6-12 months for the promoters and management, the controlling shareholders of the successor company, the executive directors with 5% or more of their interests, and their respective associates.

Inherit the company's open market

When a successor company goes public, it must ensure that there are at least 100 professional investors.

At least 25 per cent of the total number of shares issued by SPAC must be held by not less than 300 public shareholders.

3.2 Independent third-party (PIPE) investment

(1) Stock Exchange

The terms of the M & A transaction must include investment from the third-party investor (PIPE), and all PIPE investors must be professional investors.

The minimum amount of capital raised by an independent third-party investor shall vary according to the agreed valuation of the M & A target, accounting for at least 7.5% of the agreed valuation of the target company, as follows:

SPAC M & A target

Agreed valuation

Independent third party investment

Minimum percentage of agreed valuation

Less than HK $2 billion

25%

HK $2 billion or above but less than HK $5 billion

15%

HK $5 billion or above but less than HK $7 billion

10%

HK $7 billion or above

7.5%

Source: Hong Kong Stock Exchange "Consulting Summary-Special purpose acquisition companies"

At least 50 per cent of independent PIPE investment must come from at least three institutional investors, each with a total asset management value of at least HK $8 billion.

(2) SGX

SGX has no mandatory requirements for independent PIPE investment. However, if there is no PIPE investment in the SPAC M & A transaction, an independent valuer must be appointed.

3.3 shareholder redemption

(1) shareholders of the Stock Exchange shall have a right of redemption on voting in respect of:

The existence of (a) after a major change in the initiator of SPAC;

(B) SPAC mergers and acquisitions; or

(c) 's proposal to extend the duration of SPAC M & A transactions.

(2) SGX

The SGX stipulates that independent shareholders (except the founding shareholders, the management team and their respective contacts) have the right to redeem their common shares and receive the money held in the escrow account on a pro rata basis during the business merger vote.

Conclusion

From the above comparison, we can see that the SPAC listing rules of the SEHK and SGX are more stringent and cautious than the US market rules. Compared with the SPAC rules of SGX, the rules of SEHK put forward higher requirements in terms of investor and sponsor qualification, independent PIPE investment, SPAC initial capital raising and so on. Although the more stringent rules of the Stock Exchange may limit the activity of SPAC trading in the Hong Kong market to a certain extent, in the long run, it will be more conducive to the prevention of risks and the protection of investors, but also more conducive to the healthy development of Hong Kong's capital market.

Reference materials:

1. Gao Wei gentry: the Stock Exchange's proposal on the listing mechanism of (SPAC), a special purpose acquisition company.

2. Yang Juan: "SPAC overseas listing operation procedures, rule comparison, successful cases and major legal issues under the new regulations of the CSRC".