Chenghe Group’s Second SPAC Is Pursuing Merger Targets Beyond China

Chenghe Acquisition, a subsidiary of investment holding company Chenghe Group Ltd., says it is not looking to invest in businesses based in mainland China, Hong Kong or Macau

Key Takeaways:

  • The fintech-oriented SPAC features several ex-Goldman Sachs bankers in its management team, bringing Asia investment industry know-how
  • It is the second SPAC to be taken public by the Chenghe Group, whose other shell company targets the Greater China healthcare sector

By Fai Pui 

A Chinese “blank check” company has just listed on the Nasdaq, raising $115 million, with its shares four-times oversubscribed. The SPAC is targeting acquisitions in the tech and tech services arena. But its eager investors have been told they should not expect any mergers with businesses based in mainland China, Hong Kong or Macau, for now.

Why would it disregard these potentially promising markets?

The Special Purpose Acquisition Company (SPAC) in question is Chenghe Acquisition Co. (CHEAU.US) whose parent company is Chenghe Group. The prospectus says the company is open to opportunities in all areas, but it is most keen to join forces with fintech companies or tech-driven financial services businesses in such fields as AI, big data, cloud computing and blockchain technology in Asia.

And notably, the company said its initial merger target would not be any business focused on mainland China, Hong Kong or Macau.

A SPAC, before acquiring a target company, is only a shell company with cash. Then it acquires a private company to enable the firm to go public. This is similar to the traditional practice of “borrowing the shell” of company A for company B to go public. But the difference is that the SPAC is just literally an empty shell, without any actual business operations of its own.

While the Chinese market is a prime hunting ground for worldwide capital seeking investment potential, Chenghe Acquisition has seemingly turned its merger crosshairs in another direction.

The SPAC’s scopes look likely to settle on fintech companies in Southeast Asia, drawing on its managers’ experience in the region, as Chenghe looks to expand its reach and professional know-how.

So, let’s take a look at Chenghe Group’s management line-up.

Chenghe Group describes itself on its website as an investment holding company with offices in Singapore and Hong Kong, focusing on new economy sectors such as tech, TMT, healthcare and consumption. The chairman, Richard Li, was formerly the chief investment officer and chief operating officer of China Great Wall International. He was also managing director at Goldman Sachs in Asia and the head of its China Securities business. And now he can add chairman of Chenghe Acquisition to his resume.

Plans to look further afield

Ken Hitchner is the chairman of Chenghe Acquisition’s advisory board. He worked for Goldman Sachs as chairman and CEO of its Asia Pacific business excluding Japan.

Wang Shibin, the CEO, also cut his teeth at Goldman Sachs Asia. He worked at the China Development Bank and is known as the co-founder and chief business officer of HKbitEX, the digital asset exchange in Hong Kong, with a background in fintech and digital assets.

So why, with all that China expertise, is Chenghe Acquisition ruling out any opportunities in China?

The answer to the puzzle lies in the earlier SPAC listing last January – when HH&L Acquisition (HHLA.US) raised $414 million, more than three times the proceeds for Chenghe Acquisition. And HH&L was 10 times oversubscribed.

Chenghe Group’s first SPAC has set its sights on fast-growing companies in the healthcare and related sectors in Greater China and the broader Asian market. Its management line-up includes some familiar faces, with Ken Hitchner as the chairman and Richard Li as the CEO. So, Chenghe Acquisition’s plans do not point to any pessimism about China’s prospects, but rather a focus on tracking potential elsewhere.

And there’s another clue: HH&L Acquisition’s management team includes a heavy hitter called Fang Fenglei, who is credited with helping Goldman Sachs break into the Chinese market. Now chairman of HH&L Acquisition’s advisory board, he is also the founder and president of Hopu Investment Management, a long-standing partner of Chenghe Group.

Fang played a key part in defusing the Hainan Securities crisis in 2004. He brought Goldman Sachs into China in the process and set up Goldman Sachs Gao Hua Securities. He was known as one of the earliest investment banking gurus in China, ranking among the 10 most influential figures in the Chinese capital market. He successfully presided over the restructuring of companies such as China Unicom (0762.HK), Sinopec (0386.HK) and Baosteel (600019.SH) as well as the IPOs of PetroChina (0857.HK) and CNOOC (0883.HK).

Fang was also involved in setting up the first foreign joint-venture investment bank in China, China International Capital Corp. (CICC), serving as the vice chairman. And the chairman, who was thought to have nurtured Fang, was Wang Qishan, a vice president of the People’s Republic of China. At that time Wang was head of China Construction Bank (0939.HK). He partnered with Morgan Stanley to found CICC, which marked a milestone in China’s journey of financial reform.

Goldman Sachs connections

Chenghe Group managers clearly have a strong Goldman Sachs background.

In revealing their intentions for the latest SPAC, they probably want investors to know that the two companies, though in the same family, have their sights set on tech targets in different jurisdictions.

Hong Kong-based HH&L Acquisition is looking to chase down targets in healthcare tech in Greater China. Chenghe Acquisition, headquartered in Singapore, is turning its scopes on the fintech sector in the Asia market outside China. Investors can choose either investment vehicle based on their preferences.

Fintech is running hot in Asia Pacific, with investment reaching $27.5 billion and a record high 1,165 transactions, according to a KPMG-published report “Pulses of Fintech H2 2021”. Southeast Asia was a particularly strong funds magnet, as banks and merchants strive to provide embedded financial services, digital wallets and supply-chain financial services during the Covid-19 pandemic.

So, chances are that Chenghe Acquisition was set up to ride a wave of optimism about the fast-growing fintech sector in Southeast Asia, bolstered by potential regional benefits from China’s Belt and Road Initiative.

As for which fintech company Chenghe Acquisition will ultimately shoot for, investors will have to trust that those Goldman Sachs veterans know how to hit the bullseye.

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