FSS Warns "Recent Sharp Fluctuations in Newly Listed SPAC Stock Prices... Calls for Special Caution"

The Financial Supervisory Service (FSS) recently announced on the 27th that there have been occurrences of sharp fluctuations in the stock prices immediately after the listing of newly listed SPACs (Special Purpose Acquisition Companies), urging investors to exercise special caution.

According to the FSS, a SPAC is a shell company with the sole purpose of merging with another company, and before the merger, its stock price typically remains around the public offering price of 2,000 KRW. However, from January to July this year, a total of 18 newly listed SPACs were recorded, among which the stock prices of 3 SPACs listed this month surged sharply on their listing day.

While the stock prices of 15 SPACs listed from January to June rose by an average of 4.5% compared to the public offering price on their listing day, the 3 SPACs listed this month surged by an average of 151.8%. These 3 sharply rising SPACs experienced a steep decline, with their stock prices dropping by an average of 46.5% seven days after listing compared to the listing day price.

The FSS explained, "Since SPACs do not operate any business and only hold cash assets, with the sole purpose of merging with another corporation, the stock prices of SPACs that have surged can fall sharply at any time. When a SPAC merges with another corporation, the merger price of the SPAC is generally recognized at the public offering price level, and shareholders who purchased the SPAC at a higher price are subject to a lower merger ratio."

Furthermore, the FSS added, "Shareholders of the merging company tend to avoid merging with SPACs that have high stock prices due to concerns about dilution of their shareholding, increasing the likelihood of merger failure. If a SPAC fails to merge and undergoes liquidation, investors will only receive the public offering price and a certain amount of interest, and shareholders who purchased the SPAC at a high price will incur losses when the SPAC is liquidated."

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