This article is from WeChat official account:Interface News (ID: wowjiemian)< span class = "text-remarks">, author: Chen Jing, the original title: “Jia Yueting FF listed on Nasdaq accelerated pace, SPAC model is dependent on a” cut chives “? “, the head picture comes from: Visual China

After a long period of silence, Jia Yueting’s Faraday Future (hereinafter referred to as FF) went further through the SPAC listing.

On April 6, Faraday Future formally submitted the S4 listing documents to the US Securities Regulatory Commission. At present, Faraday Future is planning a merger transaction with SPAC company Property Solutions Acquisition Corp., and listed on the Nasdaq under the stock symbol “FFIE”. Faraday Future expects to land on Nasdaq in the second quarter, and the listing transaction process may be completed within May.

It is reported that Property Solutions is a special purpose acquisition company. It hopes to raise more than US$400 million to support the transaction. After the merger, the company’s valuation is approximately US$3 billion.

For China, the term SPAC seems to be a bit unfamiliar, but this listing model will explode in the US stock market in 2020, and it will become even more popular in 2021. At present, major family offices and internationally renowned investment banks have begun to seize this part of the market. But at the same time, the US Securities Regulatory Commission has aroused vigilance and has begun to tighten monitoring.

Hot and hot

SPAC is a “special purpose acquisition company”, is an investment tool that provides listed financing for enterprises. It is a listed “shell company” formed by mutual funds, hedge funds, etc. There are no other substantive assets other than funds.

SPAC companies help them achieve the goal of listing by looking for unlisted target companies, investing in them and acquiring them. If the merger is not completed within 18 months or 24 months, then this “shell company” will face liquidation and return all the funds in the custody account with interest to investors in full.

In the past two years, SPACs have become more and more popular, especially in overseas markets, attracting many ultra-high net worth investors and family office investments. Refinitiv data shows that SPAC’s listing in 2020 will set off a frenzy. The total IPO financing scale has reached a record US$157 billion. In 2021, the rate of increase has been even greater. Since the beginning of this year, the financing scale has soared to US$170 billion.

According to the requirements of the US SEC, the sponsors of SPAC must be more than 5 people, and the sponsoring capital should be at least 5 million US dollars, and the sponsors only need to invest 5% of the 5 million US dollars, or 25,000 US dollars, to get the post-listing company 20 % Of the equity, the investor contributes 95% to obtain 80% of the equity.

“In fact, there are three main reasons why SPAC can prosper.” Such as Zhang Aoping, managing director of Capital, told Jiemian News. First, it takes a short period of time. IPO takes at least one year, and the shortest time for SPAC to go public is 3 months, which can help companies raise funds faster. Second, SPAC can bypass the supervision and review of the US Securities Regulatory Commission, for some small and medium-sized enterprises, it increases their chances of listing. Third, the success rate of financing is high, and the valuation is also high. Because SPAC only needs the agreement of both parties to purchase, the price is also negotiated and there are no other uncertain factors.

Zhang Aoping told Jiemian News that if the company is successfully listed and the stock price rises, the shares held by the investor will increase from 5% to 20%, and the SPAC underwriters can get 5%~6% underwriting fees, and the management team will get At a few percentage points of salary, external investors will cash out, and the target will achieve the goal of listing, and everyone will be able to make a profit. If the stock price of the company falls after the listing, the investor still makes a profit due to the increase in equity, but the rate of return is relatively low. The underwriter has an underwriting fee of 2% to 3%, and the management team can still get salary. The main loss is investor. If the company is not listed, the investors and external investors can recover the funds, and the management team has not completed the task and cannot get the salary. Therefore, the management team will try to find the target company to successfully go public.

Hidden worries are highlighted


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The short time, low cost, low requirements, and high success rate of listing through SPAC are very popular, but it is also a potential risk of SPAC.

Zhang Aoping said that first of all, companies listed through SPAC often did not meet the requirements of traditional IPOs. Some companies even did not have mature products, but just had a preliminary idea. Such companies cannot withstand the market after listing. The test is that it is investors who ultimately bear the loss; second, after the successful listing, the promoter owns more shares in the target company, which will dilute the shares of start-up investors and external investors, which is not good for them; third, the current SPAC market is hot , There is a bubble in valuation. If the interest rate is raised due to inflation and the bubble bursts, both the company and the investors will suffer losses.

Wu Zhaoyin, director of macro strategy of AVIC Trust, believes that “because of the simple listing process and relatively loose supervision, the SPAC listing model is relatively lacking in the strict control of investment banks, thus burying greater risks, such as listing targets. False capital injections, business entities that do not comply with listing standards, and the current high popularity of the SPAC model, there is a large bubble. Once the US monetary policy is tightened, the negative impact of the lack of profitability of the listing target will appear, leading to the overall SPAC model The excessive valuation bubble burst.”

According to data collected by Stanford University, in the first quarter of 2021, there have been as many as eight cases in which investors sued companies that merged with SPAC. Some of these lawsuits stated that after SPAC completed the acquisition of the target company, the sponsors of the SPAC received huge compensation, and the target company hid its weaknesses before the acquisition, which hurt the interests of other investors.

The popularity of SPAC has made some local exchanges plan to introduce such a model to enhance the attractiveness of the local capital market, but the more popular it is, the greater the risks and bubbles behind it. The US SEC has begun to accept SPAC Close monitoring.

Reuters recently quoted four sources with direct knowledge of the matter that the SEC wrote to Wall StreetMajor banks require to know the transaction information of SPAC(Special Purpose Acquisition Company). The SEC requires banks to provide this information voluntarily, which has not yet reached the level of a formal investigation. However, these letters were issued by SEC law enforcement agencies and may be a precursor to a formal investigation.

A source said that the SEC hopes to obtain information on SPAC transaction fees, transaction volume, and the bank’s regulatory measures for these transactions. Another source said that the SEC raised issues related to compliance, reporting and internal bank controls.

Independent analyst Wang Chikun believes that SPAC is essentially a financial product. Financial products have always survived and developed within the quadrant defined by policy and market needs. The higher the speculative and riskiness of financial products, the greater the restrictions and constraints imposed by policies. Speculative and risky SPACs are favored by the current market environment and policies. It can also be predicted that at a certain point in the future, the SPAC market environment or policy environment will no longer exist, and SPACs will be left out again.

This article is from WeChat official account:Interface News (ID: wowjiemian)< span class = "text-remarks">, author: Chen Jing