The Hindu Business Line : `Blank cheque companies' enter India

Clinging on to an idea that clicked in the US in mid-80s, a band of `cash-strapped American businessmen' has arrived to aid the fund-starved Indian companies.

`Blank cheque companies', as they are called, are the newest entrants to the Indian biz space.

Business Line catches up with Mr F. Jacob Cherian, CEO, Millennium India Acquisition Co Inc (MIACI), and Mr Suhel Kanuga, CFO, MIACI, to closely understand the concept binding `blank cheque companies'.

MIACI, an American Stock Exchange-listed `blank cheque company', is the latest to enter the Indian business scenario.

Excerpts

What is a `blank cheque company'? Why is it that these companies are going gung ho over India?

Mr Cherian: The concept of `blank cheque company' is that you raise funds in the US or anywhere else in the world and bring it to a place such as India and acquire a company with it. The company is floated by a band of high profile promoters and the money is raised through first-time offerings on the bourses.

In the process, you are taking the company to the US and getting it listed on the US stock exchanges. A blank cheque company is also known as `special purpose acquisition company' or plainly SPAC.

Investors in the US are aware of the amazing growth India has achieved over the past few years. Americans love the `great India success story'. They see opportunities here and are willing to invest in this country.

How is a SPAC floated in the US?

Mr Kanuga: A group of highly regarded management experts and high net worth individual come together, pool in their money and form a company. The company then approaches the US Securities and Exchange Commission (SEC) with its business proposal. The SEC (and a whole lot of people from top investors to bankers, institutions and lawyers) checks the credentials of the board and after much screening, allow the company to go public.

The money collected post issue is deposited in an escrow account. The next task of the management is to find a sound, hi-growth potential company that can be acquired. The management has 18 to 22 months to spot a viable company and complete the capital transfer processes.

After narrowing down on a good company, we present them before our bigger stakeholders. If they approve our selection, we go ahead with formalities to make them compliant to the SEC listing laws. The company can be re-branded and re-listed in its Indian name. Then it is like any other listed company on the US bourses.

What is the risk rate in such modes of investment? What if the management is not able to spot a viable company in the stipulated time?

Mr Cherian: There is no risk rate as such. If we fail to spot a good company, the pooled-in money would be returned to the investors with interest.

How has blank cheque companies fared in other countries?

Mr Kanuga: Oh, very well. SPACs are becoming more and more popular in countries such as China, Brazil, Greece, Thailand and Israel.

Mr Cherian: Companies going for SPACs are faring well with a very broad investor base in the US. There is good market capitalisation and stocks of the companies are appreciating well on the bourses. It really pays to be listed on the US bourses.

What is in store for India as an investment destination?

Mr Cherian: There is a lot of money headed towards India. More importantly, this growing trend will raise the visibility of Indian companies among American investors. MIACI's focus will be on companies dealing in financial services, healthcare, infrastructure and consumer, retail or hospitality. We are looking for companies with good management track record and robust growth. The target company should have a fair market value (say, at least equal to 80 per cent of its net assets) at the time of acquisition.

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