Chinese startups on track to go public with blank-check firms are facing challenges as Beijing tightens scrutiny on overseas investors, executives told Reuters.
“We badly need capital to help us grow,” Tian Rui, general manager of Chaincomp NonTechnology, a provider of Internet of Things and blockchain-based solutions that had planned to be listed on Nasdaq this year by merging with a special purpose acquisition company (SPAC), told the news outlet. “A SPAC is a very good tool to help accelerate our expansion while traditional IPOs take too long.”
As SPACs seek companies to merge with, the startups saw a way to raise funds and go public faster, the executives said. But the war in Ukraine has caused market volatility to surge and chilled investors’ appetite for risk.
SPACs are special purpose acquisition companies, a shell corporation listed on a stock exchange, with the purpose of acquiring a privately held company. As a result, it allows a company to go public without going through the traditional initial public offering (IPO) process.
On Wall Street, SPAC deals have slowed, in part because of mismatched valuation expectations and tightening rules.
Still, competition is heating up in Asia thanks to the large number of unicorns, privately held startups with a value of more than $1 billion.
In the meantime, companies seeking an IPO are seeking other sources of cash.
Read more: SPACs Turn to Alternative Funding as Investor Cash Dries Up
Atalaya Capital Management, an alternative asset manager, and Apollo, a private equity group, are among those companies seeking SPAC alternatives.
“It’s problematic because it’s pretty hard for anyone but pretty sophisticated investors to understand what’s going on in these transactions and to see how sweet a deal is being offered to select investors,” said Michael Ohlrogge, a professor at New York University’s law school who studies SPACs.
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