There are two means in which a PRC company could be listed on overseas stock exchanges*: (1) by way of traditional initial public offering (IPO); and (2) through a business combination or merger with a SPAC.


*We have selected two stock markets, namely the US and the Singapore stock exchanges (SGX) for illustrative purposes. The Hong Kong Stock Exchange is currently at a consultative stage on whether and how to introduce SPACs on the HKEX and will not be a subject of this leaflet.

What is a SPAC and how does it work?

SPAC, an abbreviation of Special Purpose Acquisition Company, is an investment vehicle formed ordinarily by private equity fund, financial institutions or group of investors (the “Sponsor”) for the purpose of raising fund in an IPO to complete the combination with one or more businesses. A SPAC does not have any commercial operation and revenue until the business combination is successfully completed. You may call it a “cash company” or a “shell' if you like. The business that is combined by the SPAC will thus become a listed company.


Unlike what is proposed in the Consultative Paper of the HKEX in which it is proposed that one of the Sponsors must be a firm licensed by the Securities and Futures Commission under either category 6 (corporate finance advisor) or 9 (asset management) of licensed activities, there is no specific qualifying requirement for Sponsors under both the NASDAQ and the NYEX Listing Rules. The relevant rules under the Singapore Exchange require that the character, integrity and qualification of the Sponsors and the management team should be acceptable to the SGX. Nevertheless, the Sponsors and management team of a typical SPAC in the US are normally prominent and experienced investors as their credibility and ability on identifying suitable target companies to effect the business combination (known as the “de-SPAC Transaction”) plays an important role as to whether such investment vehicle would be successful in raising the requisite funding during its initial public offering.


In the US, the Sponsor of a SPAC will normally make an initial (pre-IPO) investment of USD25,000 for subscribing its “Founder Shares”. The SPAC typically issues units consist of one common share and a warrant to purchase common share. The mandatory issuing price, in the case of NASDAQ, is USD10, whereas in the case of Singapore, is SGD5. The Sponsor will set out in its prospectus for IPO the acquisition mandate and conditions which typically will contain information as to what specific industry, the minimum size and other criteria of the intended acquisition target to afford public investors sufficient information to reach an informed decision as to whether to invest in such a SPAC. Unlike the rules under the SGX where the target company must satisfy the listing requirements of the main board, there is no specific qualifying requirement for a target company under the NASDAQ rules except that its fair market value must at least equal to 80% of the fund held in the escrow account of the SPAC.


Under both the SGX and NASDAQ Listing Rules, 90% of the proceeds of the IPO must be deposited, in the case of US, in a trust account maintained by an “Insured Depository Institution” as defined in Section 3(c)(2) of the Federal Deposit Insurance Act or in a separate bank account established by a registered broker or dealer, and in the case of Singapore, in an escrow account of a financial institution licensed and approved by the Monetary Authority of Singapore. After the IPO, the SPAC will pursue acquisition opportunity and negotiate a merger to acquire an operating business (the “Target”). Once a Target is identified and selected, the SPAC and the Target will enter into a letter of intent or term sheet and begin drafting and negotiating a merger agreement. Under the rules of SGX, the SPAC must appoint a financial advisor, who is an issue manager to advise on the business combination. The principal terms of the merger agreement will include the consideration to be paid to the sellers of the Target which will include the shares of the surviving company and/or a mix of cash and shares. It is important to include in the terms a “Minimum Cash Condition” which guarantees a minimum amount of cash available in the SPAC at closing. Such minimum amount of cash comprises the remaining balance held in the trust account (the IPO investors have the option to convert their shares into a pro-rata portion of the trust account and keep the warrant), and fund raised from PIPE.


In the nutshell, a PIPE (Pubic Investment in Private Equity) is a private placement by a public company exempt from registration. In order to safeguard against depletion of the remaining cash in the SPAC at closing, in each and every case, the SPAC as well as the Target will begin a fundraising process concurrently with the negotiation of the merger agreement, to fund a portion of the merger consideration and the cash available to the Target at closing of the de-SPAC Transaction. The PIPE investors and the SPAC will enter into a subscription agreement for the PIPE transaction that will be signed currently with the merger agreement with funding occurs at closing.


Once the terms of the merger agreement are agreed, both the board of directors of the SPAC and the Target will submit the draft to their respective shareholders for approval. Although there is no mandatory requirement under the NASDAQ Listing Rules to have a valuation report to be presented with the draft merger agreement for shareholders approval, yet it is becoming common for US SPAC to annex a copy of a fairness opinion to, and disclosing the content thereof in, the proxy statement seeking approval from the SPAC shareholders. The rules of the SGX mandates that in the event that (i) the PIPE transaction is not from an institutional or accredited investors, or (ii) the Target is a mineral, oil and gas company or property investment/development company, a valuation report issued by a competent and independent valuer on the value of the business of the Target must accompany the circulars to shareholders of the SPAC for approving the merger. A SPAC must complete the merger within 36 months after its initial public offering under the NASDAQ Listing Rules. Under SGX rules, the prescribed time limit is 24 months but may extend for another 12 months subject to certain conditions and the approval of the SPAC shareholders in the event that: (a) a merger agreement has been signed but yet to complete within the prescribed 24 months’ limit, or (b) such extension being approved by the SPAC shareholders and the SGX. In the event that the SPAC failed to merge with a Target within the prescribed limit, it has to be delisted and liquidated.

Under NASDAQ Listing Rules, a SPAC must file a Form 8-K (proxy statement) or a Form S4 (registration statement) if the merger involves shares exchange, to the Security Exchange Commission (SEC) within four days after signing the merger agreement which includes disclosure about the merger agreement, voting agreement (if any), the PIPE subscription agreement (if applicable) any other material ancillary documents relating to the merger. The SPAC may make a public announcement on the merger. The SEC will review the Form S4 or 8-K and will comment on the content within 30 calendar days and thereafter the procedure will be similar to that of an IPO. Once all the comments are cleared, the SEC will give a go ahead to file the definitive proxy statement or will take the Form S-4 effective. The procedure for approval seeking filing in relation to an IPO under the main board listing rules of SGX will equally apply to a SPAC seeking approval on the business combination.

What advantages and disadvantages of SPAC merger?

The advantages of listing through a SPAC merger rather than a traditional IPO are:

(i) possible lesser time than a traditional IPO (the average time for a US SPAC to make its first acquisition post-IPO in year 2020 was 4.5 months). An underwritten IPO will take at least 4 months;

(ii) access to additional funds beyond what the SPAC raised in IPO through PIPE as described above;

(iii) the deal will not go public until the merger agreement is signed whereas the deal will be made public in a traditional IPO once the registration statement has been filed with the SEC or the SGX;

(iv) a Chinese company Target will be treated as a post de-SPAC foreign company and as such could quality as a “foreign private issuer” under the SEC rules and subject to the less onerous foreign filing regime than US companies.


Against such advantages, the Target should balance the following risks which a SPAC transaction may pose:

(i) execution risk: shareholders disapproval of the merger transaction or that the shareholders redeeming their equity at a rate which would create uncertainty as to the amount of cash that will be available to complete the transaction or fund the purchase price;

(ii)  valuation risk: valuation in a traditional IPO is determined by the underwriters and market demand whereas valuation in SPAC merger is to be negotiated between the Target company and the SPAC. In this connection, the Target should bear in mind that SPAC’s shareholders must view the target company as appropriately valued in order to support the business combination, failing which may lead to a large number of redemption and/or failure to get the requisite shareholders’ approval;

(iii) higher cost in kind: the Target will have to bear the cost of dilution resulting from the “promote” of the Sponsor, i.e., the Sponsor’s entitlement to a 20%-25% shares at nominal capital contribution (the total value of which may far exceed the total transaction costs of a traditional IPO);

(iv) Diluted management right: there exists a risk that the existing management team or some of its board members of the SPAC will remain after the de-SPAC transaction.


The above outline of a SPAC Transaction is by no means exhaustive. Its objective is to provide the reader with an overall general understanding on how to go public via alternative means i.e., through a business combination with a SPAC. Accordingly, please contact us should you wish to explore further this or other listing venue.


How can we assist you in effecting a SPAC merger transaction?

Our team can assist you in:

1. Preparation for a successful merger with an appropriate US or Singapore SPAC, we will provide a package of pre-IPO advisory services to assist in shaping up the company in compliance with the relevant listing rules and be ready for the said merger. Such advisory services will include:

a. conducting an overall review of your company to ascertain whether your business model is sustainable with potential to growth and make necessary recommendation;

b. assist in reefing or formulating a business development plan with short, medium and long term objectives, assist in preparing a 5-10 years cash flow projection in accordance with such development plan;

c. review your financial position and if necessary, to assist you in readjusting the accounts so as to maximize your revenue vis~a`vis profit position;

d. assist in working out the fair market value of your company by using different financial models so as to form a basis for subsequent negotiation with the SPAC and PIPE investors;

e. review your compliance status and if necessary, assist in setting up a compliance management system which is a pre-requisite continued listing condition for all listed companies;

2. Setting up an offshore structure to effect the transactions;

3. Advise the taxation implication on the potential merger transaction and if you deemed necessary, the setting up of a family wealth management trust scheme in light of the eventual listing through SPAC merger;

4. Identify an appropriate available SPAC and assist in engaging professional firms in the jurisdiction where the SPAC resides, namely law firm and investment banking firm to represent you in the de-SPAC Transaction;

5. Assist in the negotiation with the SPAC throughout the entire de-SPAC transaction;

6. Recommend and assist in conducting road shows and negotiation with PIPE investors;

7. Provide all necessary post-merger advices and services such as compliance management as a listed company, duties and responsibilities of director and senior management of a listed company, investors’ relation matters, disclosure and filing requirements under relevant listing rules etc.; and

8. Such other matters as and when required.