Why are China-background SPACs 'giving up' on the Chinese market?

Chenghe Acquisition, under the investment holding company Chenghe Group, indicated that it will not invest in entities whose headquarters or main business are located in mainland China, Hong Kong, or Macau.

Key points:

* This SPAC, with a Chinese background, primarily targets CNI Xiangmi Lake Fintech Index, but clearly states it will not merge with companies that mainly operate in China.

* The management of Chenghe Acquisition comes almost entirely from the investment bank Goldman Sachs. The parent company had another SPAC listed last year, focusing on the Greater China Medical Care business.

The author of this article is Pei Zilong.

Recently, a Special Purpose Acquisition Company (SPAC) completed a $0.115 billion (0.77 billion yuan) initial public offering, recording a fourfold oversubscription, making a strong debut on the USA Nasdaq market. However, this SPAC with a Chinese background explicitly stated that it will not conduct initial business mergers with any entities located in mainland China, Hong Kong, or Macau, or those primarily operating business in these regions, leaving investors perplexed as to why they would exclude such thriving markets.

This SPAC that has attracted market attention is$Chenghe Acquisition Co. (CHEAU.US)$, the parent company of the investment holding company Chenghe Group. The company stated during its IPO that it would pursue business merger targets in any business, industry, or location, but plans to focus on financial Technology or technology-driven financial service companies, including those related to artificial intelligence, Big Data, Cloud, and blockchain in the Asian market.

Before acquiring target items, a SPAC is merely a Cash / Money Market shell company, which goes public and acquires a private company by issuing additional shares, thereby allowing the latter to go public. Its nature is akin to a 'reverse merger', where the shell company in a reverse merger has its own business, while the SPAC is entirely a shell company.

Numerous funds globally are seeking investment opportunities in the promising Chinese market, yet Chenghe Acquisition has indicated that it will not acquire any entities whose main business is in China, suggesting that it is likely focused on fintech firms in Southeast Asia. The company believes that acquiring such firms could benefit from the expertise and capabilities of the Chenghe management team.

So we need to take a look at the background of Chenghe Group's management.

According to the official website of Chenghe Group, the company is an investment holding company with offices in both Singapore and Hong Kong, primarily investing in Technology, Communications and Media (TMT), Medical, and Consumer sectors of the XINJINGJI industry. The chairman is Li Qi, who has previously served as the Chief Investment Officer and Chief Operating Officer of China Greatwall Technology Group, and also held the position of managing director at Goldman Sachs Asia and head of China securities, while Li Qi is also part of Chenghe Acquisition.董事长。

Other deployments.

As for Ken Hitchner, the chairman of the advisory committee of Chenghe Acquisition, he also worked at Goldman Sachs, serving as chairman and CEO for the Asia Pacific region (excluding Japan); the CEO Wang Shibin also came from Goldman Sachs Asia, and he previously worked at the National Development Bank, while being a co-founder and chief business officer of Hong Kong digital asset Exchange (HKbitEX), having a certain understanding of Financial Technology and digital assets.

So why does Chenghe Acquisition explicitly state that it will not acquire companies primarily operating in China?$HH&L Acquisition Co (HHLA.US)$It turns out that Chenghe Group had another SPAC listed in the USA as early as last January, named , with a fundraising amount of 0.414 billion USD, which is 2.6 times more than Chenghe Acquisition, and recorded a 10 times oversubscription. This company has targeted growth global healthcare or related businesses in Greater China or the Asia market, and its management team is quite similar to Chenghe Acquisition, with Ken Hitchner as chairman and Li Qi as CEO. Therefore, Chenghe Acquisition's decision not to invest in China is not due to a Bearish outlook on China's economic prospects, but rather because there were already other deployments in place.

However, the biggest difference between the two is that there is a rather impressive figure in HH&L Acquisition, named Fang Fenglei, who is the chairman of this SPAC's advisory committee and also the founder and chairman of China HOPU Investment Management Company, while Chenghe Group has always collaborated with HOPU Investment.

Who is Fang Fenglei? He was the important figure who opened the doors of China for Goldman Sachs back in the day.

In 2004, Fang Fenglei was tasked with solving the crisis of Hainan Securities and introduced Goldman Sachs, and later established Goldman Sachs Gao Hua, which can be said to be the first generation of "investment banking experts" in China, and he was even rated as "one of the ten most influential people in China's Capital Markets," participating in.$PETROCHINA (00857.HK)$With$CNOOC (00883.HK)$Listing, and $CHINA UNICOM (00762.HK)$、$SINOPEC CORP (00386.HK)$With$Baoshan Iron & Steel (600019.SH)$and other corporate restructuring projects.

In 1993, Fang Fenglai participated in the establishment of China’s first Sino-foreign joint venture investment bank "China International Capital Corporation" (CICC), and served as Vice President. He was an important member in assisting the establishment of CICC.

Goldman Sachs background

Looking back at Chenghe Group, the whole team has close ties with Goldman Sachs. The two listed SPACs have already each locked in different regions' technology businesses, indicating that Chenghe wants investors to understand that although the backgrounds of the two SPACs are the same, their goals are different. HH&L Acquisition is headquartered in Hong Kong, focusing on the Greater China market in medical technology; Chenghe Acquisition is based in Singapore, targeting the financial technology market outside of China in Asia, allowing investors to make choices based on their preferences.

The development of financial technology in the Asia-Pacific region is advancing rapidly. According to data from KPMG's "Fintech Trends in the Second Half of 2021," the total investment in financial technology in the region reached 27.5 billion USD last year, with a record-breaking transaction volume of 1,165 deals, among which Southeast Asia was the most active, mainly due to the impact of the COVID-19 pandemic, as banks and merchants needed to continually enhance embedded financial services, digital wallets, and supply chain finance capabilities.

It can be inferred that Chenghe Acquisition was established because of the bullish outlook on the rapidly growing CNI Xiangmi Lake Fintech Index in Southeast Asia, along with the belief that countries in the region can benefit from China's Belt and Road Initiative Concept, leading to a promising future.

As for which fintech company Chenghe Acquisition's management will ultimately favor, investors can only trust the vision of the 'Goldman Sachs disciples'.

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