Hong Kong needs more unicorns for SPAC race

New York is the place where more startups — from EV battery makers to flying cars — have gone public by way of the boom in SPACs, or special purpose acquisition companies. Once listed, SPACs are on the lookout to place their vast sums in promising enterprises (which then don’t have to go through the complex initial public offering process). At the current rate, the world’s new generation of unicorns will all be listed in New York via SPACs. The city is once again the IPO center of the world.
This gush of funding is putting pressure on rival stock exchanges from London and Singapore to Hong Kong to rewrite their listing rules to attract the so-called “blank check” companies. London’s tough regulations, for example, may allow Amsterdam to become Europe’s SPAC centre, according to my colleague Chris Hughes. Already there are plans to make Britain more competitive. Here in Hong Kong, the question is: should the markets jump into the SPAC race?
At first glance, Hong Kong may not have as much to worry about as London or Singapore in terms of losing unicorn IPOs. After decade-high fundraising in 2020, its IPO market remains brisk.
Meanwhile, stock trading volume at Hong Kong Exchange & Clearing Ltd has soared to four times those on London’s main exchanges, thanks to strong inflows from the mainland.
Scratch the surface, however, and Hong Kong’s IPO market is far from healthy. Looking to gain from the big first-day pop that usually accompanies IPOs, the city’s retail investors have been fanatically chasing just a handful of unicorns. Meanwhile, banks are profiting from IPO margin financing, earning millions in brokerage fees as the city is drained of cash in circulation.
The retail frenzy is almost comical. In early February, when Kuaishou Technology Co Ltd, a video-sharing platform that competes with TikTok’s owner ByteDance Ltd, was raising money, retail investors were so keen on the company they put in almost HK$1.3 trillion, more than double the city’s cash in circulation, to apply for its shares. An average investor would have had to cough up HK$5 million in application — most of which is borrowed from brokers — to get only 100 shares that cost HK$115 each at Kuaishou’s IPO price.
Two weeks later, the frenzy was repeated with the listing of New Horizon Health Ltd, a Chinese cancer screening biotech. For its HK$2 billion IPO, the company received HK$844 billion orders from retail investors, prompting the exchange to investigate if some violated rules by placing multiple subscriptions to improve their odds of getting the shares. It was the third-biggest debut in terms of number of investors on record after Kuaishou and Yidu Tech Ltd, which went public late January.
In each of these three, more than 1 million people in a city of 7.5 million played on the IPO slot machine.

—Bloomberg