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Many special purpose acquisition companies or SPACs, especially those from Asia, hang in the balance as the U.S. Securities and Exchange Commission tightens the screws on the sector
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Asian regulators and exchange operators may take advantage of the opportunity to adopt a more liberal approach to SPACs to entice capital across the Pacific
Just as regulators in the United States are starting to crackdown on the Wild West that has been special purpose acquisition companies or SPACs, stock exchanges in the east are cozying up to the idea of blank check companies.
After a frenzy of listing by SPACs in American markets – 326 have raised over US$101 billion this year alone – that pipeline is now in limbo due to regulatory overhang, including a handful of deals backed by Asian investment firms and tycoons.
Filed over two weeks ago, many Asian SPACs about to launch their public offerings in U.S. markets have yet to do so and are now waiting to see if sentiment, and more importantly appetite, improves.
Like the cops showing up to a raging house party, the U.S. Securities and Exchange Commission put a damper on SPACpetite by issuing fresh guidance that warrants, which are issued to early investors in SPAC deals, might not be considered equity instruments and may instead be liabilities for accounting purposes.
The SEC’s change threatens to disrupt filings for blank-check companies because of lack of accounting clarity as issuers will now take longer to get their SPACs approved.
And while Asian SPACs have raised only US$3.1 billion this year, they are the fastest expanding category, with the much anticipated US$40 billion Grab SPAC looming on the horizon.
Grab is a ride-hailing super app that counts many Southeast Asian countries as its key market.
The timing of the SPACtacular demise of SPAC sentiment comes just as many SPACs are at, or nearing, their deadline to find acquisition targets – many have yet to find suitable candidates to acquire.
SPACs work by raising money via an IPO first, and then have a deadline to find acquisition targets, typically two years.
But as SPAC fortunes dim in the U.S., key markets in Asia such as Hong Kong and Singapore are chomping at the bit to get in on some SPACtion.
Both Hong Kong and Singapore stock exchanges are known to be actively exploring the SPAC model in the hopes of adding to liquidity on their bourses, whether the U.S. regulatory action will encourage them to take up the torch remains to be seen.
