With the base rate cut, the interest rate on SPAC (special purpose acquisition company) escrow funds has also fallen. As merger listings decrease amid a slowdown in the initial public offering (IPO) market, the escrow interest rate that had provided investors with stable revenue has also slipped into the 2% range, raising concerns that the SPAC market—which requires tying up money for a long period—could shrink.
According to the Financial Supervisory Service's electronic disclosure system on the 14th, the escrow interest rate for SPACs, which had been in the 3% range, is steadily dropping into the 2% range. HMCIB No.6 Special Purpose Aquisition Company on the 10th adjusted its escrow interest rate to 2.49%, down 0.81 percentage point from 3.3%. Previously, most SPACs, including Shinhan 11th Special Purpose Acquisition Company, KB No.30 Special Purpose Acquisition Company, Sangsangin No.4 SPAC, and Hanwha Plus No 4 Special Purpose Acquisition Company, also lowered their escrow interest rates by about 1 percentage point to the mid-2% range.
A SPAC is a paper company used to take an unlisted company public via a backdoor listing through a merger. It is established solely for corporate mergers, and the merger deadline is generally three years. If it succeeds in merging within the period, the merged corporation is listed, and existing investors exchange the SPAC shares they held for shares of the merged company. If it fails to merge within three years, the SPAC is delisted, and investors receive back their principal along with the interest on the funds escrowed for three years.
Even if a merger fails, the ability to receive interest including principal has made SPACs an attractive investment destination. In particular, since 2022, a period of high interest rates, SPAC escrow interest rates have exceeded 4%, and have been regarded as a "low-risk mid-revenue" investment product.
Through the first half of this year, the average escrow interest rate of SPACs slated for liquidation was 3.9%, far more attractive than the average deposit rate (2.64%) at the four major commercial banks at the time. However, as escrow interest rates have recently fallen quickly, the gap with deposit rates has narrowed. According to the securities industry, the current average deposit rate at commercial banks is about 2.51%, leaving little difference from SPACs that have recently lowered their escrow interest rates.
As the IPO market has recently slumped, cases of merger listings that could deliver so-called "jackpot" returns have also decreased. According to Korea Exchange, 133 SPACs have been listed since 2022, and 64—less than half—have succeeded in merging. Annual SPAC listing results showed a decent trend with 17 in 2022, 18 in 2023, and 17 in 2024, but this year there have been only 12 as of October.
An official at a securities firm noted, "In general, during periods of rate cuts, a favorable environment is created for SPAC mergers in terms of corporate valuation and risk assessment," but added, "However, Korea's SPAC market is so small that a noticeable increase in the merger success rate does not usually appear even in a low-rate environment."
Stocks of corporations that recently listed through SPACs are also sluggish. Among the 12 corporations that listed via SPACs this year, only SMCG is trading above its reference price. SMCG started at a reference price of 3,435 won and closed at 5,140 won on the 13th.
By contrast, the other 11 are all currently trading below their reference prices. Black Yak I&C, the first SPAC listing this year, started at a reference price of 5,220 won and now sits at 3,570 won, about 68% of that level. In addition, compared with their reference prices, AI KOREA is at 61.7%, New Kids On at 58.1%, and ADforus at 57.3%, showing weak performance among corporations listed via SPACs.
A securities industry official said, "Although the SPAC market has recently contracted sharply, SPACs scheduled for liquidation this year can still see favorable rate benefits compared with retail products," but added, "That said, SPACs liquidated going forward are likely to be less attractive as their listing prospects and escrow interest revenue decline."