Interest grows as Korea’s first SPAC transaction draws closer

With last weeks approvals for Hyundai Securities and Tong Yang securities to respectively list a SPAC, interest is growing as Korea gets closer to its first such transaction.

Towards the end of last year Korea’s Financial Services Commission (FSC), as part of their widespread deregulation, revised regulations to allow private investors to form a paper company, or SPAC, which can raise funds through an initial public offering and acquire another firm with that money.

“The move would help accelerate the restructuring move and raise corporate value through the mechanism of the capital market,”

Hong Young-man, director-general at the capital markets bureau of the FSC, told a press conference in regards to the changed regulations. (source)

As the title suggests, the Bloomberg article - ‘SPACs to Help Reverse Korea M&A Slowdown, Green Korea’s Ji Says’, forecasts that allowing SPACs will be a much needed kick start for domestic M&A activity.

“It provides a new vehicle for M&A,” said Ji, 42, chief executive officer of Daewoo Securities Green Korea Special Purpose Acquisition Co. “The M&A market would naturally grow, opening the door for investors to tap more investment options.”

“SPACs tend to be less sensitive to market fluctuations because they work under a deadline to find merger targets,” said Kim Kap Lae, a research fellow at the Korea Capital Market Institute.

“SPACs can be an effective tool of sustaining the M&A market during the times of downturn when others refrain from investing.” Kim added

Whilst, opening the market up to a wider range of investment opportunities is definitely a positive move which will lead to a more innovative and competitive industry, many insiders are skeptical about whether the effects will be significant, especially in the short term.

In particular, questions linger about the ability of the SPACs to attract investors, and to find suitable shareholder approved acquisition targets.

For the time being it seems, insiders and observers are taking a wait-and-see approach. But with Daewoo’s Green Korea SPAC, which is set to launch early next month, acting as the guinea pig, at least initial questions will soon be answered.

SPAC Overview -

A special purpose acquisition company (SPAC), is a paper company which raises funds through a public offering (IPO).

The money raised is held in a trust until a suitable target is found, and receives shareholder approval. If a target is not found within three years the SPAC must return the IPO funds to its investors.

The regulations for Korean SPACs stipulate -

The SPAC must deposit or consign funds raised by IPO to a securities finance corporation;
The SPAC can not withdraw or provide a guarantee of funds before being merged into the target;
At least one founder of the SPAC is a financial investment company that meets certain requirements set by the Financial Services Commission

So far nine Korean SPACs are reported to be in the works –

Daewoo Securities, is seeking to be the first to launch a SPAC, targeting early March for its trading debut.

Through the SPAC, called “Green Korea”, the group which comprises seven other investors including Korea Development Bank, Shinhan Capital, KT Capital, Korea Teachers Pension and IMM Investment plans to raise upwards of KRW 62 billion.

Green Korea aims to identify a target to merge with as early as July, and is considering businesses in areas including renewable energy, new materials and software.

Tong Yang Securities is pushing to raise KRW 45 billion with its SPAC, also targeting companies from “green growth, new growth engine industries”.

“We’re seeing so many SPACs planning to merge with green growth companies because the industry will likely continue to be important on the stock market next year,” said Yeo Joo-hyung, a manager at Tong Yang Securities’ investment banking unit in this JoongAng Daily report.

“We are considering companies related to solar and wind energy, rechargable batteries and other high-value service sectors,” Yeo added

Hyundai Securities has received regulator’s approval to list their SPAC, with accounting consulting firm Samil PWC, and are planning to raise KRW 20bn (USD 17m) by selling 3.33 million shares for KRW 6,000 apiece. They are yet to designate a target industry.

Woori Investment & Securities is looking to launch a KRW 40 billion SPAC in partnership with Alliance Capital Partners, an M&A consulting firm, and LB investment, a prominent Korean VC.

Mirae Asset Securities is seeking to raise KRW 20 billion, with Shinhan Investment, SK Securities, Korea Investment Corporation, and a joint Kyobo Securities-KTB Securities all also seeking to list a SPAC this year.