Editorial | Hong Kong should be cautious before embracing SPACs
- It is the latest investment fad, but city’s regulators would be wise to wait for a while before joining the special purpose acquisition companies bandwagon
SPACs are all the rage in the investment world these days. Now Hong Kong wants a piece of the action. But before the city goes head over heels on these special purpose acquisition companies, it’s useful to recall that they also are known in the industry as “blank-cheque” companies.
Financial Secretary Paul Chan Mo-po is right to ask the city’s securities regulator and stock market operator to study the feasibility of allowing SPACs to raise capital in Hong Kong. Chief among their concerns is investor protection.
SPACs became a buzzword in the United States last year when several powerful investors, private equity owners and celebrities such as hedge fund billionaire Bill Ackman and former US House Speaker Paul Ryan used the vehicles as an alternative to public listings to avoid the risk and uncertainty of an initial public offering (IPO).
Now, the City of London and Singapore are eyeing the market. Hong Kong is tempted, too. It may want to think twice, though.
The concept of SPACs is not new, but they have become an investment fad. Their attraction is that those behind one can attract and use investors’ capital to assemble financial war chests to buy assets, typically unlisted companies, with minimal constraints, hence their moniker as blank-cheque companies.
