SPAC Boom! (Part 1)

Before telling you my rationale for investing in this stocks, pls let me explain to U whether what is SPAC. SPAC stands for Special Purpose Acquistion Company.

What does SPAC mean?
According to Wikipedia, A special-purpose acquisition company (SPAC) is a collective investment scheme that allows public stock market investors to invest in private equity type transactions, particularly leveraged buyouts. SPACs are shell or blank-check companies that have no operations but go public with the intention of merging with or acquiring a company with the proceeds of the SPAC's initial public offering (IPO).

How does it works?
1st There is a group of specialist who used to be the top management of some industries such as Oil & Gas, mining, property or even food and beverages. These people are experienced and have good connections among the industries and they are capable to run a company and they are tired of working for other people (my assumption, anyway, who don't want to be their own boss?). Hence, these great people had came together and wanted to do something "BIG" but their issue with them was, they are lack of $$$ to do "BIG business". So what can they do if they are lack of $$$?

Here comes the concept of SPAC where the top industry guys can gather the investors and invest in their experiences and expertise. Why do the "Smart person" wanted to share their expertise with those small investors like us? As we know, usually this kindda smart person can always look for those big investors or some big fund that can afford for this kindda project, but why are they not looking for them this time but turning to those small investors? Too good to be true isn't it?

Why are they looking for US instead of those big tycoon???
Well, I believe that human will always have something behind their mind before they do anything and that's what we call it motive. Why do these smart people wanted to get money from small investors like us and go through tonnes of grilling from the SC before they can list their entity while things can be done easily if they look for big fund investors or some big venture capital? There must be some reasons behind it!

As what I can think of, those big funds or those tycoon will always look for good deal and will always try to get big chunk of the shares and benefits from those "smart people" and this will make those smart people to get squeeze badly and end up with only a little return for their effort. On the other hand, they could also lose their control towards the major sharehholders or even worst! At the end of the day, if the project is successful and the big investors will always get the company to get listed and make money by selling parts of their shares.

In order to avoid being milk badly from those big investors, those "smart people" are willing to go through some tedious process to get their asset listed as SPAC where they can have almost full control of the company and being protected by the guidelines of SPAC too!

Is it good for small investors like you and me?

As what I said above, there must be some thing behind those smart people and that makes them turn to us instead of those big shots but are we in danger? Will we be their lunch?

As we know, SC is  the regulator of Bursa Malaysia and they knew wery well that this is an important place for those company to gather money from investors to grow big and this is also 1 of the instrument for the goverment to make sure the economy growth as well. For your info, the SC will always try very hard to protect the investors in the market. Why? Who else is going to invest in stock market if everybody is losing money?

As a result, the SC had came out with a set of very strict guideline to protect the small investors especially towards the SPAC's investors. So what's their move?

1st The most important guideline is that the SPAC will have to keep 90% of its money from IPO into the bank and this money will be safeguard by a trustee appointed by the SPAC when they go for listing.
As a result, the management will not able to touch the money or spend it unless it is for asset acquiring.

2nd The SC had given a timeline of 3 years to the management to do the asset acquisition.
If the management failed to acquire any asset within that timeline, the 90% of the proceeds from IPO will be given back to all the mother shares investors. 
As a result of this, the down side risk of the investors of mother shares is only 10% of the IPO proceeds. It's not easy to get an investment that will pay you back 90% of what you invested and give you a high return. I would rate this as a very safe play.

3rd Moratorium to the initial investors.
The initial investor who are also the management will have a moratorium for not allowing them to sell their mother shares until certain timeframe as well as condition that will stipulate in the prospectus.
In the case of Sona, the Initial investors and management can only sell the shares after they are able to generates one year of audited revenue from the commercial production of its qualifying asset.
Presently, the only restrictions on the transfer or sale of shares are imposed only on the shares held by the Management Team and the initial investors who invested in the shares of the Company at prices lower than the issue price of the IPO shares and such restriction is from the listing date of the SPAC up to the completion of the Qualifying Acquisition. However, the new Shares arising from the exercise of 50% of the Warrants by the Management Team which are held under the SPAC Moratorium will still be subject to the SPAC Moratorium, until its upliftment 1 year from the date of the completion of the Qualifying Acquisition.
This will make sure that no management can run before you if the share is not doing well! As for your info, Sona is having the strictest moratorium among all the SPAC which project a very good image to the investors.

Other than the 3 clauses above, there are still some clauses are there to protect small investors like you and me. Anyway, these 3 clauses is good enough for protecting the shareholders. You know when is the due date, you know your down side risk and you know that management can't run before you. I think SC had did a good job on this and the retail investor are well protected for the SPAC.

To me, I think this SPAC is a very good instrument where both of the parties are being well protected and giving us a chance to join in those company that is just in developing stage as this is the stage where you can always get big gain. 

I will share with you about my darling stocks in the next part of SPAC Boom part 2. Stay tune! 

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