Blank-check companies that raise money for future mergers and acquisitions (M&As) have aggressively entered South Korea's secondary bourse this year, as local brokerage houses are seeking to reap higher returns through the special investment vehicle amid torpid markets, data showed Monday.
A total of 13 special purpose acquisition companies, known as SPACs, have gone public in the tech-laden KOSDAQ so far this year, accounting for about 40 percent of the newly-listed stocks, according to the bourse operator Korea Exchange (KRX).
A SPAC is a shell company that pools money through an initial public offering (IPO) and derives profits from M&A activities to allow investors to make bets on leveraged buyouts, a business mainly dominated by private equity funds.
An additional 15 SPACs are waiting for approval to enter the market, and if they get listed by the end of this year, it would raise the total number of SPACs to 28, a sharp hike from last year's three, the KRX said.
The flurry of SPAC listings on the KOSDAQ came as local securities firms, inspired by recent success stories, established publicly traded shell companies to get higher returns than their peers as the local stock market has remained mostly dull this year.
Last year, Hana Green SPAC acquired SundayToz, a South Korean developer of hit game Anipang, helping the venture firm get a back door listing on KOSDAQ. The price of the merged entity's share jumped nearly six-fold compared to the initial public offering price in May 2013.
The fast rise of SPAC listings, however, raised concern among market watchers because a failed attempt means loss of a considerable amount of upfront costs, though a successful M&A can offer decent margins.
Only three companies have either acquired start-ups or are currently going through the approval process, while the rest of them are still looking for the right targets.
"As there are several SPACs, unlisted companies want to join hands with companies that offer high equity swap ratio compared to their earnings," an official at a Seoul-based brokerage house said, speaking on condition of anonymity. "It is not easy to find the relevant acquisition target due to the tight competition."
The rush to get listed within this year also comes as the government is set to change the law to toughen regulations from next year to require back door-listed companies to undergo audits, which would require additional time and effort for floating.
SPACs are required by law to seal an M&A within three years to generate investment returns. Ninety percent of funds raised in the SPAC's IPO are entrusted in the securities financing agency Korea Securities Financing Corp. for the protection of investors. (Yonhap)
