Double squeeze of the Sec, against the Chinese giants listed both on Wall Street and on the Hong Kong stock exchange, but also against the SPAC world that is proliferating in the US. The American Stock Exchange Authority has contacted some American banks, in order to obtain information on their involvement in the creation – financing – of special purpose acquisition companies, the Spac, precisely. In this regard, watch out foralert Spac Mafia which was launched by Forbes a few months ago.
It is worth brushing up on the Spac concept.
SPAC stands for Special Purpose Acquisition Companies, literally acquisition companies with special objectives, in practice investment vehicles also known as blank check companies, which are set up with the aim of raising capital necessary to finance operations of M&A, mergers and acquisitions of companies.
These are instruments that have been conceived for the listing of companies on the stock exchange without resorting totraditional process of the IPO.
According to what the Financial Times reported, in the first nine months of 2020, the American SPACs raised $ 41.7 billion, or 44% of all public offerings, so much so that we are now talking about SPAC mania. Over the past 15 months, it has been harvested in all a capital of $ 156 billion, spread in different areas.
Basically, SPAC raises funds to buy a private company and then take it to the stock exchange. But, by the time they are created, these investment vehicles often have no idea what they are going to buy: they know they will go shopping, but not necessarily which one.
In this way it was born for example Nikola, a company that has not yet produced anything.
Regarding the SEC investigation, two sources heard by the CNBC reported that the authority asked the banks to provide information on a voluntary basis, thus indicating that the investigation has not yet taken the form of a formal request.
However, one of these sources reported that the missives were sent from division of the Sec deputy to compliance with the provisions (that of enforcement), a factor that suggests that the move could only be the first step in a broader formal investigation process.
The SEC would have asked for details on the fees received for the creation of the SPACs, on the volumes of transactions and on what controls the banks would have launched to monitor the process of the birth of these tools.
Among the most active banks in the world of SPACs, the names of Goldman Sachs and Citi and also of the German one Deutsche Bank.
But the SEC in the last few hours has also been highlighted for having adopted, according to what is always reported by the Reuters agency, some measures aimed at remove from US stock markets securities of foreign companies that do not comply with American auditing regulations.
The regulatory assumption is represented by a bill signed last December by the former American president Donald Trump (the Holding Foreign Companies Accountable Act). The SEC will also ask companies to demonstrate that they are not controlled by a foreign government entity and to indicate the names of any board member who may belong to the Communist Party of China.
The news, reported by the Reuters news agency, caused stocks of Chinese giants listed on both Wall Street and the Hong Kong stock exchange to collapse: Baidu, fresh from the launch of the IPO, it slipped 9% at the start of trading, Alibaba Group Holding lost 4.2%, JD.Com fell -4.45% and Netease -3%.
“Many investors thought that, with the Biden administration, the United States would show a friendlier attitude towards China and that things would get easier. But this news shows it’s going to be tough anyway, ”commented Wealthy Securities managing director Louis Tse.
Some analysts interviewed by Reuters also pointed out that several Chinese companies listed in the US they may fail to observe in any case, the accounting rules of the States, as doing so would risk violating Chinese legislation.
“It is quite difficult for China to show the financial statements of all US listed companies to US regulatory agencies, especially in the case of those companies operating in the national security or that manage national data, ”commented Kenny Ng, strategist at Everbright Sun Hung Kai.