With the announcement of the start of submission of applications for SPAC IPOs on SGX, readers may be interested in the case study of the listing of Nikola Corporation in the U.S. through a SPAC. This may help them understand what can go wrong in a listing through a SPAC. The case study raises questions of the due diligence (or lack of) that was done for the merger between the SPAC and Nikola.
The risk is not so much about investing in the SPAC itself, since 90% of the IPO proceeds have to be placed in escrow under SGX rules. There is therefore downside risk protection for those who invest in the SPAC as they can always choose to redeem their investment and should get back at least 90% at the time of the de-SPAC if they do so. It is the risk for those who remain or who invest at the time of the de-SPAC and in any other secondary fundraising exercises post de-SPAC. They need to evaluate the quality of the company that is merging with the SPAC, and the corporate governance (especially the track record and competencies of the directors), management and business model of the merged entity.
The case study is taken from volume 10 of the Corporate Governance Case Studies published by CPA Australia which I edited.
