Analysis

The role of offshore in Chinese SPAC transactions

, Chinese Business Law Journal

Amid the current wave of publicity surrounding deals involving Special Purpose Acquisition Companies (SPACs) and the explosion in popularity for utilisation of SPACs for equity capital market transactions among institutional and retail investors alike, the Maples Group has continued to see significant demand for Cayman Islands exempted companies to act as the issuer vehicle on SPAC initial public offering (IPO) transactions.

The use of a Cayman Islands exempted company as the issuer in these deals is the standard approach for Chinese and Asia-based SPAC IPO transactions. A Cayman Islands exempted company is incorporated to act as the issuer for the purposes of listing on one of the major US securities exchanges, the New York Stock Exchange (NYSE) or the Nasdaq.

In Asia, given significant and ongoing global investor interest, the Hong Kong Stock Exchange and Singapore Exchange are engaged in public consultations concerning changes to their listing rule regimes that would permit SPAC issuer listings. Such changes, if they occur, are expected to take effect later this year. At the time of writing, the NYSE and Nasdaq are where the vast bulk of the SPAC IPOs are being launched as Chinese and Asia-based SPAC promoters seek market exposure and access to the immense US investor pool of capital on such exchanges, particularly the institutional and high net worth investor pool.

When it comes to China and Asia, Cayman Islands and British Virgin Islands (BVI) structures continue to be a powerful tool providing Chinese and Asia-based SPAC promoters with the right corporate and governance framework that will allow them to attract and maintain investor funding, incentivise management and promote the objectives of key stakeholders. Additionally, the use of a Cayman Islands exempted company provides the right structure for the SPAC to be in a position to consummate a business combination following the IPO, once the SPAC’s board has identified a prospective target for the SPAC to acquire/merge with under such business combination (commonly known as the de-SPAC transaction).

The Cayman Islands LLC agreement can authorise each party to act in its own interests as opposed to commercial arrangements structured through companies (where directors of those companies have fiduciary duties that require them to act in the interests of the company as a whole, rather than the investors who appointed them, which is perhaps a more realistic governance approach). The sponsor’s investors will typically include the promoters of the SPAC (such as the promoters or individuals who will be acting on the board of the SPAC).

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