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Hong Kong is considering whether to allow listings of blank-check companies, potentially opening the doors to a wave of Chinese-focused deals involving special-purpose acquisition companies.

Permitting SPACs would set up a competition with regional rival Singapore, which recently moved to allow such listings, and exchanges in New York, which have hosted a string of deals related to China and Southeast Asia. The two Asian financial hubs are acting even as U.S. regulators have hardened their stance toward SPACs.

SPACs are shell companies that first raise money from public investors and list on stock exchanges, then hunt for private companies to merge with. They have been touted as a more streamlined alternative to initial public offerings, although regulators in the U.S. have tightened scrutiny of the investment vehicles following a wave of SPAC activity.

Proposals released Friday by Hong Kong’s stock exchange would require SPACs to raise at least 1 billion Hong Kong dollars, the equivalent of $128.5 million, in an IPO. The companies would have two years to find a merger partner, and would have to conclude the merger within three years.

The consultation paper said that as of mid-July, 25 SPACs based in the Greater China region had raised about $4.2 billion in U.S. IPOs. “If SPACs focused on finding a Greater China target were able to list in Hong Kong, this may also help ensure that such targets chose Hong Kong as a listing venue rather than the U.S.," it said.

The exchange, a unit of Hong Kong Exchanges and Clearing Ltd., said the proposals were more stringent than U.S. rules. Subscription and trading of SPAC securities will be restricted to professional investors, while individual investors will be allowed to buy into stocks after the merger takes place, it said.

Before merging with SPACs, companies would need to raise 15% to 25% of their expected market capitalization via a so-called PIPE, or private investment in public equity. PIPE funding rounds are typical in SPAC mergers. The exchange is soliciting feedback on its proposals until the end of October.

SPACs could benefit companies in new sectors and with long paths to profitability, especially where valuation is difficult to gauge, said Bonnie Chan, head of listing at the Hong Kong exchange.

She said that was because SPAC promoters, PIPE investors and target companies could negotiate directly on price. “The belief is that…through that very direct price negotiation you will arrive at a more accurate, or more optimal, price," Ms. Chan said.

Companies created through SPAC mergers will need to follow all of Hong Kong’s requirements for new listings, and forecasts made before such a merger will be held to the same standards as IPOs, the paper said. Hong Kong’s exchange has spent years ridding itself of shell companies that have low trading volumes or, in some cases, have allowed problematic companies to join the market.

This week, Hong Kong-based Covid-19 testing startup Prenetics Group Ltd. and Gogoro Inc., a Taiwanese battery-swapping specialist, both unveiled plans to merge with SPACs listed on the Nasdaq Stock Market.

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