RMGB SPAC Stock Pops for new merger rumors

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Investors in pre-deal blank check firms like RMG Acquisition usually have no idea what type of deal they will end up with. They’re counting on the SPAC sponsors to find good deal. SPAC stocks will rise when investors expect good business, usually in hot industries like electric vehicles and renewables.

RMGB-ReNew Power merger rumor

The RMGB SPAC is discussing the release of ReNew Power with the support of billionaire venture capitalist Chamath Palihapitiya and other prominent investors. The talks have progressed well and the merger could be announced at any time.

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A deal would value ReNew at $ 8 billion. ReNew would receive $ 610 million in cash to invest in expanding its renewable power production capacity. The money would come from the RMGB 345 million raised in SPAC’s December IPO and contribution from PIPE investors.

Source: istock

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RMGB arranges PIPE deals to raise $ 855 million for the ReNew merger transaction. PIPE investors include the head of Social Capital and serial SPAC sponsor Palihapitiya. The other investors are BlackRock, TT International Asset Management, Sylebra Capital and BNP Paribas. Palihapitiya has directed or participated in many investments in the renewable energy field. The billionaire believes that the richest person in the world will be someone who combats climate change.

Currently, ReNew Power can generate 10 gigawatts of renewable electricity, but that is far from meeting the demand. As a result, the capacity is increased. The company counts Goldman Sachs, the Abu Dhabi Investment Authority and the Canada Pension Plan Investment Board among its investors.

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ReNew had sales of 7.8 billion Indian rupees ($ 108 million) for the six months ended September 2020 – an increase of approximately $ 80 million over a similar period in 2019. The company is not yet profitable. The six months ended September 2020 posted a loss of $ 30 million, up from a loss of $ 3.7 million in a similar period in 2019. ReNew initially targeted an initial public offering in India, the company said However, plan for 2019 at a time domestically based on volatility in the stock markets.

Is the RMGB SPAC share a buy amid ReNew merger rumors?

RMGB SPAC stocks still look cheap. Even after the pop outside of business hours, it’s only 35 percent above the IPO price. Meanwhile, prior to the merger, SPAC stocks like IPOD and IPOF are up 64 percent and 57 percent from their listing price, respectively.

Is the renewal of the electricity share a buy?Source: Unsplash

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A merger with ReNew could be of great importance to RMGB stock investors given the promising outlook for renewable energy demand in India. Many renewable energy stocks are currently trading at premium valuations. Given a deal with ReNew, the RMGB share could appeal to investors looking for an opportunity in the renewable energy sector.

However, renewable energy stocks have come under pressure recently due to rising interest rates. Most of these companies rely on debt to fund their capital-intensive projects. When interest rates rise, leverage becomes a greater burden. As a result, some investors have diminished the prospect of increased interest in renewable company profit margins.

Investors looking at RMGB shares should consider the volatility of SPAC shares prior to closing. Churchill Capital SPAC (CCIV) has been up and down many times amid Lucid Motors’ merger rumors. At one point it was trading up to 500 percent of its IPO price. Although investors got the deal they wanted, CCIV stocks have been falling in the past few days as pre-deal investors are rapidly posting gains.

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