Is the SPAC boom over? Deals in Singapore and Hong Kong appear to be fizzling out

It’s been a slow and cautious start for SPACs that launched in Hong Kong and Singapore in recent months — in stark contrast to last year’s SPAC boom in the U.S. which has also fizzled out.

SPACs are special purpose acquisition companies. They are shell companies that raise capital in an initial public offering and use the cash to merge with a private company in order to take it public, usually within two years.

Only one SPAC was launched in Hong Kong in the first quarter and it raised $128 million, while three were launched in Singapore, raising a total of $334 million, according to data analytics firm Refinitiv.

“This is likely reflective of investors being happy to play a game of patience, rather than retail investors in the US who in recent years chased SPACs higher in [the] hope they would acquire a ‘hot start up,'” said Neil Campling, head of technology, media and telecom research at Mirabaud Equity Research.

Among the three SPACs listed in Singapore was Vertex Technology Acquisition and Pegasus, both of which last traded below their offer price of 5 Singapore dollars ($3.60).

In Hong Kong, Aquila Acquisition made its SPAC debut in March, which was also trading below its offer price of 10 Hong Kong dollars ($1.27). Hong Kong still has another 10 SPAC applications as of mid-March, according to its stock exchange.

The slow activity at the start would be an initial disappointment for Singapore, which had set its sights on drawing SPACs in hopes of reviving its flagging IPO market.

Hong Kong, on the other hand, has taken steps to dampen speculative trading by banning retail participation in SPAC trading before the stage where the merger takes place.

“I would describe the SPAC environment in Asia as cautious given the volatility in the US over the last two years and a general practice of ‘slow and steady wins the race’ mentality,” said Campling.

The U.S., in comparison, enjoyed a record year with more than $160 billion raised on U.S. exchanges in 2021 — that’s nearly double the amount raise the previous year, according to data from SPAC Research. 

But even the red-hot SPAC market in the U.S. seemed to struggle for direction this year.

The U.S. Securities and Exchange Commission has started to crack down on SPACs, with a host of new rules addressing complaints about incomplete information and insufficient protection against conflicts of interest and fraud. 

The CNBC SPAC Post Deal Index — which comprises SPACs that have completed their mergers and taken their target companies public — tumbled around 20% in January this year, from a February 2021 high. However, it has since bounced back partially.

Still, the situation may yet look up for companies seeking a SPAC listing in Asia, according to analysts.

Investors may also be looking to cash in on their earlier purchases, they said.

Chinese unicorns — or start-ups with at least $1 billion in valuation — are running out of private capital to tap on, and that could drive them to seek SPAC listings in Hong Kong, according to Drew Bernstein, co-founder and chairman at audit advisory firm MBP.

“There are over 300 China-based unicorns, some of which are exceeding the capacity of private capital sources,” Bernstein told CNBC. “In my experience, if you are able to offer a Chinese CEO a straightforward, fast path to raising capital, there will be no shortage of takers.”

“A Hong Kong SPAC merger may be an attractive option for mainland China companies that are seeking access to capital and liquidity convertible into dollars but are concerned about the accounting and regulatory uncertainties involved in a U.S. listing right now,” he added.

Chinese tech shares have plummeted over the past year. Hong Kong’s Hang Seng Tech index has dropped more than 50% compared to a year ago.

The market has been hit by China’s regulatory crackdown as well as ongoing tensions with the U.S. The U.S. Securities and Exchange Commission earlier this year started identifying Chinese companies that could be delisted if they didn’t comply with audit requirements.