VinFast, the high-spending Vietnamese automaker with bold plans in North Carolina, has for months sought a path to the stock market. It’s now poised to take an alternative route to get there.
Last week, VinFast pivoted from its pursuit of a traditional initial public offering, announcing it will instead go public in 2023 via a special purpose acquisition company, or SPAC.
A SPAC, also known as blank check company, is a publicly traded shell company that serves as a vehicle for a private company to become public. Once the two companies merge, the private company gets a public listing.
VinFast will merge with Black Spade Acquisition Co., a Hong Kong-based SPAC listed on the New York Stock Exchange. Black Spade formed in 2021 at the height of a recent SPAC boom that’s since halted. Two years ago, a record 613 SPACs launched. So far in 2023, the number is 14.
A spokesperson for VinFast told The News & Observer that a SPAC will afford the company a U.S. public listing “without the need to simultaneously raise substantial amounts of capital from investors.” In a statement last Friday, the company said it expects the deal to close in the second half of this year.
VinFast is going public at a moment the company is burning through substantial amounts of cash — losses of $1.3 billion in 2021 and $2.1 billion in 2022 — as it overhauls operations away from selling gas-powered cars in its home country to manufacturing electric SUVs globally.
The company has pledged to spend $4 billion on a new car and battery manufacturing facility in Chatham County, on a megasite 30 miles southwest of Raleigh. The plant, the company’s first in North America, is expected to create 7,500 jobs within the next five years, and the state has offered VinFast handsome tax breaks if it meets its hiring and investment targets.
Unlike most fledgling startups, VinFast has access to deep financial resources through its ownership. The company, founded in 2017, is a subsidiary of VinGroup, a ubiquitous private conglomerate in Vietnam that is owned by Pham Nhat Vuong, the country’s wealthiest person. In April, VinFast announced it would receive another $2.5 billion from its parent company and Vuong personally.
This additional funding, VinFast said, gives the company the flexibility to obtain a U.S. public listing without raising significant capital in the process.
Is VinFast actually worth $23 billion?
VinFast’s agreement with Black Spade values the car company at $23 billion, making it one of the largest SPAC deals in history.
Yet this valuation does not necessarily reflect VinFast’s true worth; $23 billion is the amount decided on by Black Spade and VinFast, not the broader market. It is significantly greater than the valuations of other electric vehicle startups like Rivian and Lucid Motors, and it’s even more than the current market caps of established companies like Delta Air Lines, Michelin and Nokia.
VinFast is a 6-year-old company that’s just begun to deliver its first electric vehicles to customers (to less than stellar reviews).
Many who research SPACs are confident that VinFast’s $23 billion valuation won’t hold up on the open market.
“($23 billion) is not even close to a valid value,” said Michael Ohlrogge, an associate professor at the New York University School of Law.
“It’s hard to justify,” said Jay Ritter, a finance professor at the University of Florida’s Warrington College of Business.
The lofty valuation, along with the terms of the SPAC agreement, suggest VinFast will raise relatively little capital from the deal.
Black Spade currently has around $169 million in cash, but before the SPAC combines with VinFast, its shareholders have the option to redeem their shares. Those who don’t redeem will go on to hold VinFast stock at the $23 billion valuation.
Redemption rates for SPACs, in recent years, have typically exceeded 90%, Ohlrogge said, and he predicted the redemption rate for the VinFast merger, given its high valuation, will be close to total.
As shareholders redeem, the SPAC’s $169 million cash reserves will dwindle.
“By picking a valuation that has no basis in reality, (VinFast is) accepting that almost all the investors will redeem and take their money back,” Ohlrogge said. “Therefore, they’re hardly going to get any money from this transaction.”
Ritter estimated the money VinFast will end up raising from this deal could “probably cover one day of their cash burn.”
So, why go public if not to raise capital?
Usha Rodrigues, a corporate finance and securities law professor at the University of Georgia, identified two other reasons private companies seek access to capital markets.
One is liquidity. Entering the market allows executives and employees to convert their company shares to cash. The other motivation for going public, Rodrigues said, is prestige.
If its deal with Black Spade completes, VinFast will acquire a spot on the prestigious New York Stock Exchange. Rodrigues said a NYSE listing “does translate to more money” if a company is successful enough to remain on the exchange.
She added it has become more common for companies to go public via SPACs without their primary motivation being to raise capital.
In an email to The News & Observer, VinFast said it “wants to become a listed US company,” but the company did not respond to a follow-up question asking why.
