Hong Kong's top deal makers will be hoping the proliferation of special purpose acquisition companies (SPACs) can inject life into the moribund market after a two-quarter slump as the Ukraine war smashes asset valuations.
Some 11 so-called bank-cheque companies filed applications to list in Hong Kong last quarter, with Aquila Acquisition making its debut last month, as the city's bourse operator embraces non-traditional companies for initial public offerings (IPOs) to catch up with global rivals.
"The development of SPACs will definitely help M&As [mergers and acquisitions] as it will give rise to new acquisition capital," said Clement Chan, managing director of accounting firm BDO, which is auditing some SPACs including Aquila. "The promoters are under pressure to get deals done within a certain time limit."
Do you have questions about the biggest topics and trends from around the world? Get the answers with SCMP Knowledge, our new platform of curated content with explainers, FAQs, analyses and infographics brought to you by our award-winning team.
The outlook for M&As has arguably brightened after a 35 per cent slump in MSCI China Index over the past year, cheapening valuations to multi-decade lows. Globally, some 86 per cent of investors surveyed by Preqin indicated they would invest the same amount or more in private capital over the next 12 months.
A file photo of BDO managing director Clement Chan. Photo: Handout alt=A file photo of BDO managing director Clement Chan. Photo: Handout>
M&As involving Hong Kong companies shrank 37 per cent last quarter to US$24.4 billion from a year earlier, according to data compiled by Refinitiv. The value was also the lowest since the second quarter of 2021 when transactions totalled US$20.9 billion.
"The abrupt decline in M&A deals in the first quarter is due to the negative market sentiment created by the pandemic and the Russia-Ukraine war," said Chan.
Hong Kong's first SPAC slips in IPO debut as city embraces blank cheque companies
Deal-making in the city has fallen for two consecutive quarters. Volumes in the first quarter plummeted 53.6 per cent from last year's fourth quarter, which in turn was 25 per cent lower than the third quarter when it stood at US$70.3 billion, Refinitiv data showed.
SPACs, which are typically anchored by public figures such as celebrities, sports icons and entrepreneurs, are created with the objective of raising capital to buy assets within a set period.
In Hong Kong, a SPAC needs to raise at least HK$1 billion (US$128 million) and must announce a deal within 24 months, failing which they must return the money to investors. Brokers said SPACs could complete a merger deal about six to nine months after listing.