At an open meeting on March 30, 2022, the Securities and Exchange Commission proposed far-reaching changes to the regulations of special purpose acquisition companies, or SPACs, that could eliminate many of the advantages the vehicles have enjoyed over traditional IPOs.
At the end of June 2021, Chinese IPOs were on track to post a record-breaking year. Didi Chuxing had completed the most eagerly awaited listing from China since the debut of Alibaba. Companies from the technology and healthcare sectors were flocking to NASDAQ and the NYSE, where they could bypass the long waiting list for the Mainland’s exchanges and achieve higher valuations and greater liquidity than what Hong Kong typically offered.
For two decades, IPOs by most Chinese companies on U.S. stock markets have existed in a regulatory no man's land. Technically, investment in the sectors most enticing to overseas investors — including internet, media, telecom, and education — was off-limits to foreign ownership. But beginning with the listing of Sina Corporation in 2000, Western lawyers and investment bankers were able to successfully skirt these rules using a variable interest entity, or VIE, structure. Foreign investors could not own the assets of or exert direct control over the Chinese operating company but theoretically had a claim on the profits and cash flows and the right to acquire ownership should Chinese law change to make that permissible in the future.
Chinese IPOs had a strong start in the first quarter of 2021, with 24 initial public offerings from Greater China that raised $5.8 billion. According to Renaissance Capital data, that's up by 728% over the $700 million raked in by Chinese names listing on NASDAQ and the New York Stock Exchange in the first quarter of 2020.
On March 31st, the SEC’s Acting Chief Accountant, Paul Munter, issued a lengthy “public statement” detailing concerns about private companies' readiness that go public through a SPAC merger to be successful as listed companies. His admonitions come as SPAC IPOs have exploded in the first quarter of 2021, with 298 SPACs raising over $87 billion, nearly 24 times the $3.49 billion raised by 13 SPACs during the comparable period in 2020. At the same time, SPAC IPOs that had been trading at huge premia to the cash held in trust and outperforming the S&P back in February have seen a significant retrenchment, with an average return of just 1.5% for SPACs that debuted in Q1 2021, according to Renaissance Capital.
In 2020, China dominated the global IPO market as never before. 565 new public companies were born through listings on China’s domestic markets, Hong Kong, and the U.S. exchanges, raking in $133 billion dollars. That is up by 51% from 2019 and compares to $78.2 billion raised by 218 operating companies on the U.S. markets during the same period. While the U.S. still led the world in capital raising last year, that was primarily due to the unprecedented 248 SPAC IPOs that raised $75.5 billion dollars. In 2021, SPAC IPOs based in Asia are taking off as experienced private equity, venture, and hedge fund investors launch their own SPAC initiatives. A SPAC merger creates yet another option for the management teams of companies from Greater China to consider in order to raise capital and obtain public status on an accelerated timeframe.
In the past 18 months, many of the biggest names in finance have embraced SPACs, as they became an obsession of both retail investors and the financial media. So far in 2021, 264 SPAC IPOs have gone public, raising $77 billion — a pace of over $1.5 billion per trading day. This compares to 71 operating companies that have IPOed thus far this year, raising $30.1 billion.
The U.S. IPO market is off to a rollicking start in 2021, with 114 new listings in the month of January that have raised $36.1 billion. The top performer so far? RLX Technology, the Chinese e-cigarette purveyor that rocketed 146% on the first day's trading, is currently hovering at twice its offering price.
The White House put over a dozen Chinese companies on an investment blacklist. Congress passed legislation to enforce long-neglected requirements for audit inspections or delist the offending companies from U.S. exchanges. China’s government announced antitrust investigations that shook the value of internet goliaths, Alibaba and Tencent.
While special purpose acquisition companies (SPACs) have existed since the early 1990s, these investment vehicles have gained popularity in recent years. SPAC IPOs have raised over $49 billion thus far in 2020, outstripping all prior records, and many more have filed to go public by the end of the year. While in the past, most SPACs were taken public by boutique investment bankers and raised tens of millions of dollars, today, nearly every "bulge bracket" firm has led a SPACs deal, with proceeds up to hundreds of millions or even billions of dollars.