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Regulatory changes needed to spur growth of SPACs in Korea
By Anna J. Park
Special-purpose acquisition companies (SPACs) are enjoying a heyday through initial public offerings (IPOs), particularly in the U.S. stock markets. SPACs are paper companies solely incorporated to raise capital through initial public offerings to acquire another existing company. SPACs in the U.S. have raised about $87.9 billion so far this year, already exceeding last year's total of $83.4 billion.
Despite their growing popularity in the U.S., SPACs are not as favored among investors in Korea. One of the reasons behind this is the trauma the Korean market holds. The country's very first SPAC failed and ended up getting liquidated. Back in 2010, the "Green Korea" SPAC by Daewoo Securities ― now Mirae Asset Daewoo ― raised 100 billion won ($90 million), but ended up getting liquidated after three years following failed attempts to acquire promising companies.
Since the failure of the nation's first SPAC, their sizes have grown much smaller here. Most SPACs during the last 10 years raised less than 10 billion won in capital on average. The unpopularity of SPACs also created a vicious circle of failing to attract big deals into the market as investors shunned parking their money in them.
This tendency continued until last year. In 2020, only 19 SPAC IPOs debuted on the Korean stock markets, attracting a total of 164 billion won. That means only around 8.6 billion won was raised per each SPAC, which is about 2 percent of the capital raised by an average SPAC in the U.S.
Investors' aversion of SPACs, however, seems to be changing in Korea now.
While SPACs in 2020 resulted in a single-digit competition rate in their average subscription process, the most recent SPACs are drawing at least double-digit stock allotment competition rates. "Hana Must 7th SPAC" logged a competition rate of 237.41:1, followed by 168.68:1 by "Hana Financial 17th SPAC," and 101.7:1 by "IBK 15th SPAC."
So far this year, six SPACs have debuted on the Korean stock markets, which is 50 percent higher than the number seen over the same period last year.
Despite the encouraging signs in the local SPAC market, observers are calling for systemic changes in regulations for further growth in Korea. Observers also believe SPAC IPOs could stimulate the country's venture startups.
"One of the greatest strengths of SPAC IPOs is that a public offering could be done in a much faster manner than traditional IPOs. But in the Korean market, SPAC IPOs and traditional IPOs are not too different in the speed of their public offerings," a market insider criticized, calling for regulatory changes in the SPAC IPO process.
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