By Scott Murdoch and Alun John

HONG KONG (Reuters) – Investment banks and business advisers oppose Hong Kong’s proposed rules for blank check lists, arguing they are too onerous and will not make the city competitive, have said three sources familiar with the matter.

Interested parties have until Oct. 31 to file comments with the Hong Kong Stock Exchange regarding its proposed framework for Special Purpose Acquisition Companies (SPAC).

The criticism comes at a time when rival Asian financial center Singapore has ramped up preparations to allow PSPCs, which raise funds in the stock markets to buy private companies, giving those companies a quick and inexpensive way to get listed. .

The main concerns raised include a proposed requirement that any PSPC deal is worth at least HK $ 1 billion ($ 130 million) because that excludes smaller buyout targets, sources who worked on the bids said.

The sources were not authorized to speak to the media and refused to be identified.

The proposed rules also state that there must be at least 75 professional investors in a PSPC listing, 40% of which must be institutional while retail investors can only participate after the company has completed its merger – requirements likely to make trading illiquid, sources added.

The rules also require the merged entity to appoint a financial sponsor to perform due diligence and meet the exchange’s existing listing requirements, which could take another three to six months for the listing process.

“Some practitioners believe this could undermine the intention to offer PSPC as an alternative and streamlined approach to scoring,” the city’s Financial Services Development Council said of the due diligence requirement in a submission filed Wednesday. .

The Hong Kong Stock Exchange did not indicate whether it would be willing to make any concessions when Reuters asked it for comment.

Its PSPC consultation paper says the exchange does not want to replicate US PSPC rules but rather plans to create a regime “tailored to the particular risks and requirements of the Hong Kong market,” adding that several proposals are “designed to provide a point of view. ‘high entry. for candidates to the SPAC list and De-SPAC targets.

The Hong Kong Securities and Futures Commission told Reuters in a statement that it will work closely with the exchange to take market feedback into account when finalizing the new rules.

According to Refinitiv, nearly $ 137 billion worth of PSPCs have been issued worldwide so far in 2021. The pace of transactions has dropped sharply -hottest-dealmaking-trend-fizzled-2021-09-16 since the first quarter, however, with US investors spooked by poor vehicle financial performance and a regulatory crackdown.

While Hong Kong is still debating its rules, Singapore last month became the first Asian market to allow PSPCs to be listed, making concessions after the initial proposals were seen as too strict.

The European asset manager Tikehau Capital is among the first sources-idUSKBN2HH05F to plan a SPAC listing in Singapore, sources told Reuters.

“I think there is concern that the proposed PSPC regime for Hong Kong is less competitive than that of other jurisdictions,” said Vivian Yiu, Hong Kong-based capital markets partner at law firm Morrison & Foerster.

“While the Stock Exchange naturally puts these safeguards in place to prevent abuse and market manipulation, there may be room for relaxation in some areas as retail investors are barred from investing until the end. de-SPAC, ”she said.

Hong Kong officials have spent years combating illegal practices related to the formation and speculative trading of shell companies, which they say provide opportunities for market manipulation and insider dealing. These concerns resulted in strict rules in 2019 that limit backdoor lists.

(Reporting by Scott Murdoch and Alun John in Hong Kong; editing by Edwina Gibbs)

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