China bars mainland brokers from promoting SPAC deals in Hong Kong -sources

China Securities Co

10/03/2022 07:37

By Scott Murdoch, Samuel Shen and Selena  Li
    SYDNEY/HONG KONG, March 10 (Reuters) - China's securities
regulator has barred the country's investment banks it regulates
from acting as promoters of blank-check firms in Hong Kong,
three people with knowledge of the matter said, cutting off a
potentially lucrative business.
    The China Securities and Regulatory Commission (CSRC) has
decided to take the step, which was communicated to the mainland
investment banks earlier this year, due to concerns over the
risks associated with those vehicles, the sources said. 
    While promoting the deals will be off-limits, the investment
banks will be allowed to work as advisors on special purpose
acquisition company (SPAC) transactions under Hong Kong's new
rules for such listings, said the sources.
    The people spoke on condition of anonymity as the directive
was not public.
    The move comes as China is set to unveil final and tougher
rules for offshore capital raising by domestic companies, as
part of which the regulators are also seeking to subject
investment banks to extra scrutiny.  urn:newsml:reuters.com:*:nL4N2TE0Z7 
    Mainland commercial banks-affiliated institutions, regulated
by the China Banking and Insurance Regulatory Commission (CBIRC)
have been given the greenlight to be promoters, the sources
said, giving them a competitive edge.
    Chinese brokerages have been lobbying the CSRC to change the
rules to allow them to act as promoters as well, one of the
sources said.
    CSRC and CBIRC did not immediately respond to requests for
comment.
    SPACs are shell, or blank-check companies, that raise money
in an initial public offering (IPO) with the proceeds held in a
trust for the purpose of merging with a private company and
taking it public.
    In Hong Kong, promoters are the same as sponsors in other
markets in that they establish the SPAC and own promoter shares
issued by the blank check company.
    Promoters pay much less for their shares, which are a
different class of stock than those issued in the IPO, compared
with the price paid by public investors, allowing them to lock
in higher profits later.
    Investment banks are allowed to be sponsors in the United
States with some like Goldman Sachs  GS.N  having created their
owns SPACs in the last two years.
    In Singapore, the current rules don't bar investment banks
from becoming SPAC sponsors, but bankers say the regime calls
for such vehicles to be backed by experienced and quality
sponsors, and is not likely to appeal to investment banks and
brokerages.
    In Hong Kong, the asset management arms of two commercial
banks, Agricultural Bank of China International (ABCI) and China
Merchants Bank International (CMBI) have acted as SPAC
promoters, according to exchange filings.
    The city allowed creation of SPACs starting Jan. 1 and eight
such vehicles have lodged preliminary filings, according to the
Hong Kong stock exchange website.

 (Reporting by Scott Murdoch in Sydney, Samuel Shen in Shanghai
and Selena Li in Hong Kong; Editing by Sumeet Chatterjee and
Kenneth Maxwell)
 ((Scott.Murdoch@thomsonreuters.com;))