Wall Street banks pull back from Middle East SPACs


Citigroup will be very cautious in accepting new SPAC mandates in the region, although it won’t pull back completely and could step up work depending on how the final rules in the United States look, the people added, who asked not to be identified in discussing private matters.

NEW YORK: Wall Street banks are rethinking their involvement in the listings of special-purpose acquisition companies (SPACs) in the Middle East’s nascent market, as new liability guidelines from US regulators chill the once red-hot industry.

Middle East SPAC sponsors such as Gulf Capital and Investcorp were initially in talks with Citigroup Inc and Bank of America Corp respectively, but they are likely to rely on local banks to finalise the deal, according to people familiar with the matter.

It’s unclear what role either US banks will play, if any.

Citigroup will be very cautious in accepting new SPAC mandates in the region, although it won’t pull back completely and could step up work depending on how the final rules in the United States look, the people added, who asked not to be identified in discussing private matters.

Bank of America has also paused work on SPACs more broadly while the US rules are being finalised.

Goldman Sachs Group Inc, which has pulled out of working with most SPACs it took public, is currently not chasing blank-checque firms in the Middle East, people familiar with the matter said. JPMorgan Chase & Co (JPM) is being similarly cautious.

Citi, JPM, Bank of America, Goldman Sachs, Investcorp and Gulf Capital declined to comment.

While the region’s local banks are expected to step in to fill the hole, the US pullback from the Middle East’s fledgling market underscored the global repercussions the proposed Securities and Exchange Commission (SEC) guidelines have had on the industry.

The sector has gone from being one of Wall Street’s hottest fads at the peak of the pandemic to a sector beleaguered by poor returns, pulled deals and fading investor enthusiasm.

The proposals from the SEC unveiled three months ago would expose underwriters to greater liability risk, among other measures tightening the screws on the once free-wheeling industry.

This prompted US banks to scale back their work with blank-cheque firms.

The Middle East is just one of the markets which has sought to get in on the action, with the likes of London, Hong Kong and Singapore all unveiling regulatory frameworks for blank-cheque firms in the past two years even as the market in the United States sputtered.

The vehicles are empty shells that go public with a view to merging with a private company in a fixed time period, usually two years.

They exploded on Wall Street at the height of the pandemic bull market, raising US$162bil (RM713.3bil) last year in the United States alone, data compiled by Bloomberg showed.

But activity has since slowed, as existing SPACs struggle to find targets, planned ones get pulled and those that have merged with a company trading so low as to become buyout targets.

The Middle East has only just started its foray into blank-cheque listings, with a vehicle backed by wealth fund ADQ and Chimera Investments becoming the first listed SPAC in the region last month. — Bloomberg

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