How to Use a SPAC as a Cross-Border M&A Tool: An Alternative Listing Path for Hong Kong Buyers

The 2024 amendments to the Hong Kong Exchange (HKEX) Listing Rules, effective 1 January 2025, introduced a new Chapter 18C for specialist technology companies, but the path to a US listing via a Special Purpose Acquisition Company (SPAC) remains a structurally distinct and, for certain cross-border buyers, a more capital-efficient alternative. Specifically, the US Securities and Exchange Commission’s (SEC) 2024 final rules on SPACs (Release No. 33-11265) tightened disclosure requirements for de-SPAC transactions, but the core mechanism—a merger between a private operating company and a publicly traded shell—retains its strategic utility for Hong Kong-based acquirers targeting US-listed targets. This is not about a traditional IPO; it is about using a SPAC as a pre-packaged M&A vehicle to acquire a US public company, bypassing the protracted bookbuilding and marketing process of a conventional listing. For Hong Kong buyers—whether family offices, private equity firms, or corporate treasuries—the SPAC structure offers a route to acquire a US-listed entity with a built-in cash trust, a public market currency, and a defined timeline. This article dissects the mechanics, regulatory obligations, and financial engineering required to execute a cross-border SPAC acquisition from a Hong Kong domicile.

The Structural Mechanics of a Cross-Border SPAC Acquisition

A SPAC is, at its core, a blank-check company that raises capital in an IPO with the sole purpose of acquiring an operating business within a prescribed timeframe—typically 18 to 24 months under NYSE and NASDAQ listing standards. For a Hong Kong buyer, the transaction is not a simple purchase of shares; it is a merger or consolidation where the SPAC’s trust proceeds (the cash raised from public investors) are used to fund the acquisition, and the target company’s shareholders receive SPAC shares in exchange for their equity. The 2024 SEC rules now require that any de-SPAC transaction be treated as a primary offering of the target’s securities, subjecting it to full registration under the Securities Act of 1933. This means the Hong Kong buyer must file a registration statement (Form S-4 or F-4) with the SEC, including audited financial statements prepared in accordance with US GAAP or IFRS as accepted by the SEC, and a proxy statement for the SPAC’s public shareholders to vote on the transaction.

The Trust Account as a Source of Acquisition Capital

The defining financial feature of a SPAC is the trust account. As of Q1 2025, the average SPAC IPO raised USD 200 million to USD 400 million, with the proceeds held in a U.S. trust account earning interest at approximately 5.0% per annum (based on the current federal funds rate). For a Hong Kong buyer, this trust represents a pre-funded acquisition war chest. When the de-SPAC transaction closes, the trust proceeds are released to the combined entity, net of redemptions by dissenting public shareholders. Data from SPAC Research (2025) indicates that average redemption rates in 2024 were 45%—meaning that for a USD 300 million trust, only USD 165 million remained for the acquisition. The buyer must therefore bridge the gap between the trust proceeds and the target’s enterprise value, either through a private investment in public equity (PIPE) or seller financing.

The PIPE Requirement and Hong Kong Capital

The SEC’s 2024 rules explicitly require that a de-SPAC transaction must have a minimum of 80% of the trust proceeds (excluding redemptions) used to complete the business combination. In practice, this means the Hong Kong buyer must arrange a PIPE to ensure the combined entity has sufficient working capital. For a typical transaction, the PIPE size ranges from 20% to 50% of the trust amount. A Hong Kong family office or corporate treasury can provide this PIPE directly, but must comply with the SFC’s Code on Unit Trusts and Mutual Funds (Chapter 571) if the investment is structured as a fund. Alternatively, a Hong Kong-incorporated SPAC sponsor vehicle can issue promissory notes to the buyer, converting into equity upon closing.

Regulatory Compliance for Hong Kong Buyers in a De-SPAC Transaction

Hong Kong buyers face a dual regulatory burden: the SEC’s federal securities laws and the Hong Kong Securities and Futures Ordinance (Cap. 571) (SFO). The SFO’s licensing requirements under Part V apply if the buyer is deemed to be “carrying on a business in a regulated activity” in Hong Kong. A de-SPAC transaction involving the acquisition of a US-listed company does not automatically trigger a Hong Kong licensing requirement, but the buyer’s activities—such as arranging the PIPE or advising on the transaction—may fall under Type 6 (advising on corporate finance) or Type 1 (dealing in securities) regulated activities.

The Takeovers Code and Mandatory Offer Considerations

If the Hong Kong buyer acquires more than 30% of the voting rights in a Hong Kong-listed company, the Takeovers Code (the Code on Takeovers and Mergers and Share Buy-backs) would require a mandatory general offer. However, the target in a de-SPAC transaction is a US-listed entity, so the Takeovers Code does not apply directly. The buyer must instead comply with the SEC’s rules on tender offers and the Williams Act (Section 13(d) and 14(d) of the Securities Exchange Act of 1934). A Schedule 13D filing is required within 10 days of crossing the 5% beneficial ownership threshold in the combined entity. Hong Kong buyers should note that the SEC’s 2024 rules now require enhanced disclosure of the SPAC sponsor’s identity and any conflicts of interest, including any side agreements with the buyer.

HKMA Cross-Border Capital Flow Restrictions

The Hong Kong Monetary Authority (HKMA) does not impose exchange controls on capital outflows for Hong Kong-incorporated entities, but the buyer must comply with the SFO’s anti-money laundering (AML) provisions under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615). For a Hong Kong buyer transferring funds to a US trust account, the HKMA’s 2023 circular on “Cross-Border Fund Transfers” (Ref: B10/1C) requires that any transfer exceeding HKD 800,000 be accompanied by a completed Form 1 (Cross-Border Fund Transfer Notification) if the funds originate from a Hong Kong bank. The buyer must also ensure that the PIPE subscription does not contravene the SFC’s Guidelines on the Prevention of Money Laundering and Terrorist Financing (2024 edition).

Tax Structuring for the De-SPAC Transaction

The tax implications of a cross-border SPAC acquisition are driven by the jurisdictions involved: Hong Kong (the buyer’s domicile), the Cayman Islands or Delaware (the SPAC’s domicile), and the United States (the target’s jurisdiction). Hong Kong’s territorial tax system means that only profits arising in or derived from Hong Kong are subject to profits tax at a rate of 16.5% (or 8.25% for the first HKD 2 million under the two-tiered regime). A Hong Kong buyer holding shares in a US-listed SPAC will not be subject to Hong Kong tax on capital gains from the sale of those shares, provided the shares are held as a capital asset and not as trading stock.

US Withholding Tax on Dividends and Interest

If the combined entity pays dividends to the Hong Kong buyer, a 30% US withholding tax applies under the Internal Revenue Code (IRC) Section 1441, unless a tax treaty reduces the rate. The US-Hong Kong Double Taxation Agreement (DTA) does not exist; the United States does not have a comprehensive income tax treaty with Hong Kong. Therefore, the default 30% rate applies. For interest payments on any PIPE notes issued by the SPAC sponsor, the same 30% withholding applies under IRC Section 1442. The buyer can structure the PIPE as a convertible note with a zero-coupon feature to defer the interest recognition, but the original issue discount (OID) will still be subject to US withholding.

Hong Kong Stamp Duty on Share Transfers

A Hong Kong buyer acquiring SPAC shares on the NYSE or NASDAQ will not incur Hong Kong stamp duty, as the transaction occurs outside Hong Kong. However, if the SPAC sponsor vehicle is a Hong Kong-incorporated company, any transfer of shares in that vehicle will attract stamp duty at 0.13% on the consideration (or the market value, if higher) under the Stamp Duty Ordinance (Cap. 117). The buyer should consider incorporating the sponsor vehicle in a zero-stamp jurisdiction, such as the Cayman Islands or Bermuda, to avoid this cost. The HKEX’s 2024 consultation paper on “Stamp Duty on Shares of Hong Kong-Listed Companies” (Consultation Paper No. 2024-01) does not apply to US-listed entities.

Execution Risks and Practical Considerations

The timeline for a de-SPAC transaction is compressed relative to a traditional IPO. From the announcement of the business combination to the closing, the typical period is 90 to 120 days, compared to 6 to 12 months for a US IPO. For a Hong Kong buyer, the risk lies in the SPAC’s redemption deadline. If the SPAC fails to complete the acquisition within its charter life (usually 18 to 24 months from the IPO date), it must liquidate and return the trust proceeds to shareholders. The buyer must therefore conduct due diligence on the SPAC’s remaining time to expiration—a SPAC with less than 6 months remaining presents a higher risk of forced liquidation.

Sponsor Economics and Founder Shares

The SPAC sponsor typically receives 20% of the SPAC’s shares (founder shares) for a nominal investment, usually USD 25,000. In a de-SPAC transaction, these founder shares convert into equity of the combined entity. For a Hong Kong buyer, this means that the sponsor’s economics dilute the buyer’s stake. The buyer should negotiate a reduction in the sponsor’s promote (the percentage of founder shares) as part of the transaction terms. Data from SPAC Research (2025) shows that in 2024, the average promote was reduced to 15% in de-SPAC transactions where the buyer was a strategic investor.

Redemption Risk and Shareholder Approval

Public SPAC shareholders have the right to redeem their shares for a pro-rata portion of the trust account, regardless of how they vote on the business combination. This redemption right creates significant execution risk. If a large percentage of shareholders redeem, the trust proceeds available for the acquisition shrink. The Hong Kong buyer must therefore secure a PIPE commitment that is sufficient to cover the minimum trust requirement after redemptions. A typical PIPE commitment is 20% of the trust amount, but in volatile markets, this can rise to 50%. The buyer should also consider a forward purchase agreement (FPA) with the SPAC sponsor, where the sponsor commits to purchase additional shares if redemptions exceed a certain threshold.

Actionable Takeaways for Hong Kong Buyers

1. Secure a PIPE commitment of at least 30% of the SPAC trust amount to mitigate redemption risk, as average redemption rates in 2024 were 45% and can exceed 70% in volatile markets.
2. Incorporate the SPAC sponsor vehicle in the Cayman Islands to avoid Hong Kong stamp duty on share transfers and to benefit from a zero-tax jurisdiction on capital gains.
3. Negotiate a reduction in the sponsor’s promote to 15% or lower by leveraging the buyer’s strategic value and the SEC’s 2024 requirement for enhanced disclosure of sponsor compensation.
4. File a Schedule 13D within 10 days of crossing the 5% beneficial ownership threshold in the combined entity to comply with the Williams Act and avoid SEC enforcement actions.
5. Structure the PIPE as a zero-coupon convertible note to defer US withholding tax on interest, but engage a US tax advisor to address the OID implications under IRC Section 1272.