SEC tells auditors to be tough on SPAC shares

Reuters and Bloomberg

The US Securities and Exchange Commission has told top auditors of blank-check acquisition companies to account more strictly for public shares in these shells.

SEC staff have privately told top auditors of Special Purpose Acquisition Companies, or SPACs, that redeemable shares issued by these shells must be treated as temporary - known as "mezzanine" - equity, in a break from the long-standing industry practice of treating them as permanent equity.

The change will cause most SPACs to fall below the minimum equity capital requirement of Nasdaq's Capital Market tier, pushing SPACs looking to list on Nasdaq to its Global Market tier, which has no equity requirement, the people said.

The development marks the second time this year that the SEC has tightened SPAC accounting guidance and the latest salvo in the agency's broader crackdown on the SPAC deals market, a booming business for Wall Street over the past 18 months.

In other news, SenseTime Group, China's largest artificial intelligence company, said in its filing for an initial public offering in Hong Kong that just one of its subsidiaries is subject to US sanctions, a narrow interpretation of the blacklisting that could bolster its business.

In its IPO prospectus, the company said that one of its subsidiaries, Beijing SenseTime, is covered under the Commerce Department's entity list. The restrictions on that unit do not apply to other SenseTime entities, based on a legal opinion from the law firm Hughes Hubbard & Reed, the company said.

That would be a more limited blacklisting of SenseTime than is generally understood. The company, which makes AI technology for facial recognition, was put on the entity list by former President Donald Trump's administration for alleged human rights violations against the minority Uygur population, along with more than 20 other entities.

In Hong Kong, IPO debutants Transcenta Holding (6628) went down by 17.3 percent to HK$13.24 while Dongguan Rural Commercial Bank (9889) traded 4.2 percent higher at HK$8.25 after paring loss.

In other news, the retail portion of rice noodle chain Tam Jai International was said to have recorded a nearly 30 times over-subscription and to have priced its IPO close to the low end of the indicative price range.