
PE-backed Zhaogang to list via Hong Kong SPAC merger

Zhaogang, a private equity-backed Chinese B2B steel-trading platform, is on course to become the first company to list in Hong Kong through a merger with a special purpose acquisition company (SPAC).
Hong Kong unveiled rules for SPAC listings in late 2021 and Aquila Acquisition Corp, which is sponsored by CMB International Asset Management, was the first to list in March of last year. Aquila Acquisition has agreed to merge with ZG Group – the parent company of Zhaogang – in a deal that values the target at approximately HKD 10bn (USD 1.27bn).
Zhaogang filed to list in Hong Kong in 2018 but the application lapsed. At the time, the company had raised CNY 2bn (USD 303m) across five rounds featuring financial and strategic investors.
The largest institutional shareholders were K2 Ventures, Matrix Partners China, and ZhenFund. Other backers included China Renaissance-owned Huaxing Growth Capital, the Russia-China Investment Fund, West Fund, a vehicle launched by state-backed steelmaker Shougang Group and domestic broker Zhongtai Securities. West Fund led a CNY 1.1bn investment in 2016.
The likes of Yunqi Partners, Bull Capital Partners, IDG Capital Partners, Sequoia Capital China, and Oriental Fortune Capital have also participated in funding rounds for Zhaogang.
Founded in 2012, the company facilitates online steel trading between suppliers and buyers, as well as providing storage, material processing, and logistics services. From there, it expanded into lending, offering loans to small and medium-sized steel companies.
SPAC shareholders can elect to redeem their shares for cash on completion of the deal instead of exercising their warrants and purchasing shares. Assuming zero redemptions, they will own 8.8% of the merged entity, while the SPAC sponsor will hold 2%. PIPE investors, who have committed HKD 605.3m to the deal, will own 5.1%, according to a filing.
The rest of the equity will be held by rollover investors, notably Dong Wang and Changhui Wang, the co-founders of Zhaogang. The weighted voting rights (WVR) structure means they will retain a majority voting interest.
Zhaogang was the world’s largest digital platform for third-party steel transactions by volume in 2022, according to China Insights Consulting (CIC). Leveraging its industrial insights and digital infrastructure, the company is diversifying into non-steel raw materials, including electronic components and electrical and electric hardware.
Gross merchandise value (GMV) reached CNY 162.1bn in 2022, up from CNY 34.9bn in 2018. Revenue came to CNY 905.4m in 2022, down from CNY 1.35bn a year earlier. Over the same period, Zhaogang’s net loss widened from CNY 274.4m to CNY 366.1m.
CIC projects that online steel transactions in China will hit CNY 2.4bn in value by 2027, up from CNY 994.8bn in 2022.
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