A leading short seller warned that the Spac craze would bring “quite expensive lessons” for investors because of the creation of “castles in the sky” due to competitions for listing through a bad check tool.
Jim Chanos is still known for predicting the collapse of the energy conglomerate Enron. He accused some people who listed the company through SPAC of “making quick and loose predictions on their predictions” to attract retail investors.
Chanos said that Kynikos Associates, a hedge fund founded by the 63-year-old, is betting on some Spac companies that have “very bad business” and “become stupid” valuations. He refused to reveal their names.
The criticism came as the scandals of several high-profile Spac companies began to diminish the euphoria of the boom that began last year and gained momentum early this year.
U.S. electric truck manufacturer Lordstown Motor Company This month warned that despite the previous announcement that it has sufficient cash to build its flagship model, its business may run out of funds. Rival Nicolas, who went public in June 2020, has also been censored Several claims It has surpassed its technology.
Chanos said: “You are now seeing various situations in which the IPO process may not be disclosed through the Spac mechanism.”
“As the boom continues, we suspect that more and more companies are playing… fast and loose forecasts to attract investors to invest money.”
Spacs, or special purpose acquisition tools, raise funds from investors through listings that promise to merge with real companies. In the past 18 months, blue chip mutual funds, private equity firms, and retail investors have invested in them.
According to data from data provider Refinitiv, they raised $100 billion from 370 listed companies worldwide this year, and more than 400 Spacs are now looking for company acquisitions.
Companies listed through Spac rather than traditional IPOs have greater permission to make bold sales forecasts-this is already Attracted attention The United States Securities and Exchange Commission.
Chanos said, Supervisors should step in Because “that’s [the projections] A star in the eyes of investors can easily lose a lot of money. ”
This huge sum of money has emerged several prolific sponsors, these sponsors are the names of the founders of Spac, including former Facebook executives Chamas Palihapitia, Former Citi Dealer Michael Klein And Howard Lutnick, CEO of Cantor Fitzgerald.
Chanos warned investors not to be fooled by reputation. At the same time, he warned against “smart man syndrome” or “celebrity patina”. In this case, celebrities were brought in to support the transaction.
For example, the sports betting company DraftKings has added celebrities to its board of directors, including basketball legend Michael Jordan and supermodel Gisele Bundchen.
“When you follow people into things, you have to be very, very careful,” Chanos said.
However, this veteran short seller who has operated Kynikos in New York for more than three decades is not entirely hostile to the Spac market. Before proceeding with the acquisition of a company, Kynikos already had a long position on bad checks, which were traded at a price lower than the $10 they listed.
In the past year, the U.S. stock market has experienced an astonishing rebound, as well as a Spac boom. The benchmark S&P 500 index is up 95% from its March 2020 low, when the pandemic hit the market hard.
Facts have proved that this is a test background for short sellers.Although Kynikos did Nearly 100 million U.S. dollars Betting on the German payment group Wirecard, whose assets have fallen below US$1 billion after reaching a peak of approximately US$7 billion after the financial crisis.
Chanos said that in addition to Spacs, there are foams. Taking Torchlight Energy as an example, this American company initially offered fitness classes based on pole dancing but later became a shale oil producer. After its share price has soared more than ten times this year, it is raising funds.
“Life is short,” Chanos said. “If I were a striptease company but announced a merger, I think I could raise much more money than the short sellers are now.”