Explainer | What are SPACs, where are the pitfalls and why is Hong Kong mulling joining in the latest investment craze?

Special purpose acquisition companies, or SPACs, are one of the hottest capital-raising trends this year, with fans including Hong Kong-based tycoons Richard Li and Adrian Cheng

Hong Kong is among several Asian bourses considering allowing so-called blank-cheque companies to raise capital in the city

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Night view of Victoria Harbour, taken from The Peak. Hong Kong is considering changing its rules to allow special purpose acquisition companies, or SPACs, to list in the city. Photo: May Tse

Published: 8:30am, 2 Apr 2021Updated: 11:14am, 2 Apr 2021

Hong Kong’s financial regulators are exploring whether the city should follow one of the hottest international fundraising trends globally and allow special purpose acquisition companies (SPACs), or so-called blank-cheque companies, to raise money on the city’s stock market.

Financial Secretary Paul Chan Mo-po in March said he had instructed the Securities and Futures Commission (SFC) and Hong Kong Exchanges and Clearing (HKEX) to explore suitable listing regimes that include SPACs. The financial chief wants to use them to enhance the city’s competitiveness as a fundraising hub while safeguarding small investors.

The city is reviewing its options after several wealthy families in Hong Kong and Asia said they will seek to sponsor SPACs in the US instead of Hong Kong.

Here is what you need to know about SPACs, which may well be the next big thing in Hong Kong’s stock market.

What are SPACs?

SPACs do not have an existing business. They are created purely as a vehicle to attract investors, build up financial war chests and buy assets, typically unlisted companies.