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The Spac boom will teach investors a “pretty expensive lesson” as the race to make it public through empty vehicles creates “castles in the sky,” a short-selling chief has warned.
Jim Chanos, best known for announcing the collapse of the Enron energy group, has complained that some who have made the company public through Spac are “playing fast and quietly with their projections” in an effort to attract retail investors.
Kynikos Associates, a hedge fund created by a 63-year-old woman, is betting on some Spac companies that are “very bad businesses” and whose ratings have become “stupid”. He refused to name them.
This criticism is due to the fact that the scandals of several top Spac companies started last year and gained strength earlier this year when the euphoria created by a boom begins to subside.
US electric truck manufacturer Lordstown Motors this month he warned that his business could run out of money despite stating that he had enough money to build his main vehicle in advance. Competitor Nikola, who made it public in June 2020, also conducted the study various proclamations he has done it with his technology.
“You’re now seeing all the situations that don’t go beyond all sorts in the IPO process that are being publicly released through the Spac machinery,” Chanos said.
“As the boom progresses, we suspect more and more companies will play. . . with its projections quickly and calmly, to attract investors to take capital. “
Vehicles or special purpose vehicles raise money from investors through a promise to merge with a real business. Over the past 18 months, blue-chip mutuals, private equity firms and retail investors have made money.
They have raised $ 100 billion worldwide from 370 listings this year, according to data provider Refinitiv, and more than 400 Spacs are being hunted down by companies to buy.
Companies that sell through Spac have a greater license to make bold sales forecasts instead of the traditional sales forecast – it already exists he attracted attention Securities and Exchange Commission.
Chanos said the regulator should intervene in fact, “that’s it [the projections] investors have stars in their eyes and tend to lose a lot of money. ”
Bonanza has thrown out a slew of sponsors who named Spac’s founders, including a former Facebook executive Chamath Palihapitiya, A former Citigroup salesman Michael Klein and CEO Cantor Fitzgerald Howard Lutnick.
Chanos warned that in addition to the risk that investors may be deceived by good names, they warn against the “smart guy syndrome” or the “patina of a famous name” by accepting a deal with reputable names.
Sports betting company DraftKings added such celebrities to its board as basketball legend Michael Jordan and supermodel Gisele Bündchen.
“You have to be very, very careful when you follow people in things,” Chanos said.
However, the veteran short salesman, who has run Kynikos in New York for more than three decades, is not entirely hostile to the Spac market. Kynikos has taken long positions in empty vehicles that sell for less than the $ 10 they list before they go to buy the company.
The Spac boom has been created over the past year with an astonishing rebound in U.S. stocks. The S&P 500 benchmark was up 95 percent from its March 2020 low when pandemics hit the market.
It has been proven to be a background for short seller testing. Although Kynikos did almost $ 100 million By betting against the German payments group Wirecard, its assets have fallen below $ 1 billion after reaching about $ 7 billion after the financial crisis.
Chanos said there are bubbles beyond Spacs, pointing to the example of Torchlight Energy, a U.S. company that has since started offering fitness classes based around pole dance, but later became a shale producer. He is raising money this year after the stock rose more than tenfold.
“Life is rough on the short side,” Chanos said. “If I were a strip pole company, but I announced a merger, I think short sellers can raise a lot more money than they do now.”
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