City warns over UK dash to join Spacs craze claiming investors will lose money if rules are relaxed
The Chancellor’s plans for a UK Spacs boom have been met with heavy criticism from top financiers and brokers.
In a bid to boost the London stock market, Rishi Sunak has proposed easing rules on the new finance craze that is sweeping Wall Street.
A review by Lord Hill, a former EU commissioner, has advocated scrapping the requirement for so-called special purpose acquisition companies (Spacs) to suspend their shares once they have identified a target.
A review by Lord Hill (pictured), a former EU commissioner, has advocated scrapping the requirement for Spacs to suspend their shares once they have identified a target.
This is a big change as it means a Spac can find a target company, and the new entity can begin trading immediately. Under current rules Spacs in the UK must go through accounting and due diligence checks as well as meet Financial Conduct Authority (FCA) regulatory requirements before shares are allowed to trade.
Andrew Monk, chief executive at broking firm VSA Capital, said: ‘The current Spac phenomenon is crazy. A lot investors of will lose money backing them.
‘In the US a Spac finds a target and trades, literally overnight. In the UK it takes six months so firms may as well as go through the listing process.
There’s due diligence and FCA hoops to jump through. Ending the requirement to suspend shares is a big deal and I’m not sure it’s a good thing.’
Blank cheque companies – as they are sometimes known – have grown in popularity in the US.
Unlike conventional companies, they do not have a business of their own, but stash capital to buy or merge with another firm, then list it on a market. When a deal is done investors share in the gains or losses.
Joanna Coles, a former women’s magazine editor who was editor-in-chief at Marie Claire, US baseball star Alex Rodriguez and basketball legend Shaquille O’Neal, and tycoon Sir Richard Branson have all launched Spacs. But analysts warn they are a sign of a bubble in the markets.
Neil Wilson, analyst at Markets, said: ‘Spacs are a bubble – you have no idea what you are investing in and the rules are totally opaque unlike a traditional listing which protects early stage investors.
‘There is a strong chance many retail investors could back failures. The whole point of a Spac is to get round disclosure rules that seek to protect investors.
‘I think it’s good for the City to evolve and thrive. Changing rules to enable more tech firms to list here and not the US makes sense, but going full throttle after the Spacs craze is a bit too far.’