VinFast’s Rise and Fall Burns Investors in Familiar SPAC Pattern

livemint.com:

A crash in the shares of electric-car startup VinFast Auto is serving as a warning: One of Wall Street’s hottest financial trends in recent years often ends with everyday investors getting burned. The Vietnamese firm last month became one of the latest startups to go public by merging with a shell company, an alternative route to the stock market that became popular during the pandemic. The eye-popping swings in its shares that followed mirror the volatility that has been common among startups that went public the same way and reflect the quirks of how such deals often work.

For some, the big stock moves are reminiscent of another pandemic phenomenon that resulted in many individual investors losing money: the trading frenzy that turned struggling companies such as GameStop into meme stocks. “This is equally as comical as GameStop," said Matt Simpson, managing partner at Wealthspring Capital and a SPAC investor. “It was completely divorced from reality." At their peak, VinFast’s shares briefly valued the six-year-old business at $190 billion.

That is twice the combined value of Ford and General Motors, despite the company just starting to increase production. Its shares have tumbled nearly 80% from that high in the past 11 trading days. Unlike with traditional initial public offerings, SPAC deals let companies make lofty business projections and draw in individual investors before mergers are completed.

Anyone can buy shares of the shell firm before it combines with the target company, making the deals more accessible than IPOs, which are typically limited to professional investors before listings are complete. That openness has backfired on many traders. Shares of the roughly 400 companies that went public through SPACs