Hong Kong's second SPAC zooms in on smart cars, supply chain, e-commerce as potential takeover targets

Hong Kong's second special-purpose acquisition company (SPAC), Vision Deal, is reviewing a shortlist of potential merger targets, as Chinese entrepreneurs and companies including Geely-backed carmaker Polestar test-drive the investment vehicle as an alternative route to a public listing.

Vision Deal is looking at a number of candidates at the moment, including the largest or second-largest leaders in smart-car technologies, supply chain, and cross-border e-commerce, said Wei Zhe, chairman and executive director.

"The target company's market cap needs to be big enough," he said. "We hope its market cap to be around HK$15 billion to HK$20 billion, so that it can have sufficient liquidity for the SPAC investment."

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Vision Deal, led by former Alibaba.com CEO Wei, raised US$127 million when it debuted in Hong Kong on June 10, becoming the second SPAC in the city after Aquila Acquisition. Vision Knight Capital, spearheaded by Wei, owns 45 per cent of the listing company's stake.

Wei Zhe, chairman and executive director of Vision Deal. Photo: Handout alt=Wei Zhe, chairman and executive director of Vision Deal. Photo: Handout>

Meanwhile, Geely-owned electric vehicle maker Polestar is set to start trading on Nasdaq on Friday as it completes its merger with a SPAC named Gores Guggenheim. The merger, first announced last year, is expected to raise around US$890 million.

SPACs, also known as black-cheque companies, have attracted attention from sports icon Li Ning, Hong Kong-based tycoons Richard Li Tzar-kai and Adrian Cheng Chi-kong, and casino mogul Lawrence Ho Yau-lung, chairman and chief executive of Melco Resorts and Entertainment.

A SPAC is a shell company that is established to raise money via a listing on the stock market, with the goal of later acquiring another firm, usually in a few designated sectors or geographies. The SPAC has emerged as one of the hottest international capital-raising trends in the past two years, with the bulk of the activity in the US.

Exchange Square in Hong Kong, home of Hong Kong Exchange and Clearing (HKEX), pictured on June 24, 2022. HKEX has set the strictest rules for special-purpose acquisition companies among exchanges worldwide. Photo: SCMP / Dickson Lee alt=Exchange Square in Hong Kong, home of Hong Kong Exchange and Clearing (HKEX), pictured on June 24, 2022. HKEX has set the strictest rules for special-purpose acquisition companies among exchanges worldwide. Photo: SCMP / Dickson Lee>

Twelve SPACs have applied to list in Hong Kong since January, when bourse operated Hong Kong Exchanges and Clearing (HKEX) started to allow such listings. HKEX put in place the highest restrictions among all exchanges worldwide, such as allowing only institutional investors to buy shares in SPACs before the 'de-SPAC' stage (when the selected company merges with the listed SPAC).

Vision Deal is expected to announce a merger target within 18 months, which is shorter than the 24-month requirement imposed by HKEX. It's a conservative projection by the team, Wei said. The company plans to launch more SPACs in the future after finishing the merger process of the current deal, he noted.

"We are working hard on de-SPAC this time, definitely hoping to have the second and the third one," said Vision Deal's Wei. It's unlikely the company would have two or three pre-merger SPACs active at the same time, in case of conflicts, he added.

Entrepreneur and former gymnast Li Ning poses with equipment made by his eponymous company in Beijing on April 29, 2019. Trinity Acquisition Holdings, a special purpose acquisition company (SPAC) co-sponsored by Li, filed for a share sale in Hong Kong in February. Photo: SCMP / Simon Song alt=Entrepreneur and former gymnast Li Ning poses with equipment made by his eponymous company in Beijing on April 29, 2019. Trinity Acquisition Holdings, a special purpose acquisition company (SPAC) co-sponsored by Li, filed for a share sale in Hong Kong in February. Photo: SCMP / Simon Song>

Hong Kong is embracing SPAC applications even as the boom in the US is cooling down amid tighter regulation. Chinese companies are increasingly looking to the listing tool as they now have less access to US capital markets because of rising scrutiny by Washington amid concerns over auditing oversight.

The outlook for SPACs in Hong Kong will depend on the development of the broader market and whether the first SPACs successfully merge, experts said.

If the overall market struggles, some of the SPACs may delay their mergers, said Irene Chu, head of new economy at KPMG China. Only those that successfully merge and see strong market performance will prove the new avenue of listing to be viable, she said.

Market participants and experts foresee more SPAC listings in the city, and predict a healthy market due to HKEX's higher restrictions.

"The Hong Kong market will be long-term and long-lasting," said Shuang Rongqing, chief executive of Balloch Holding Group, whose team plans to apply to list two SPACs in Hong Kong after leading the Nasdaq listings of Redwoods Acquisition in March and Pacifico Acquisition in September last year. "The huge demand from mainland companies - especially state-owned enterprises and firms with data security requirements - will push the Hong Kong market to peak in around three years."

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2022 South China Morning Post Publishers Ltd. All rights reserved.

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