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SEBI readies framework for SPAC listing in India

PALAK SHAH | | Updated on: May 19, 2022

SPAC has no commercial operations but is formed strictly to raise capital through IPOs

Soon India may have its own version of a “blank cheque company.” Like in the US, market regulator SEBI is likely to allow the listing of Special Purpose Acquisition Companies (SPAC).

SEBI told the Parliamentary Standing Committee on Finance that it was deliberating on the framework of SPACs in Indian capital markets and a committee, which was set-up to look into it, is in the process of finalising its report.

Blank cheque companies

The model behind SPACs is like “have cash, will acquire a business.” SPAC has no commercial operations but is formed strictly to raise capital through IPOs. The purpose of SPAC is to acquire or merge with an existing company. In the market lingo, SPACs are called “blank cheque companies.” Reportedly, in 2020, nearly 250 SPACs were created, mainly in the US, with $80 billion invested. The year 2021 saw roughly 600 SPAC IPOs. Recently, SPACs created by Indian entities have been listed in the US. For example, ReNew Power’s merged with US-based blank cheque firm RMG Acquisition Corporation II and then got listed on Nasdaq.

Raising money through IPOs is a lengthy process since it involves heavy regulatory filings and other obligations. In contrast, a company can be listed on exchanges in days if it merges or is acquired by a special-purpose acquisition company (SPAC). It is a vehicle born out of financial engineering but the easiest to understand, experts say. a SPAC that has a limited time frame for making an acquisition, compared with another buyer like a private-equity firm, which may drive a hard bargain. In India, however, the SEBI rules will define a SPAC.

Key feature

But during the recent market crash, since investors have been rushing out of risky assets, SPACs have been struggling for business and deals. A key feature of the SPACs is that blank cheque companies have a couple of years to find a company to take public, otherwise they must return money to investors and forfeit the incurred. 

According to sources close to the development, SEBI told the Parliamentary standing committee that “The sub group of the primary market advisory committee (PMAC) is in the process of finalising the report on SPACs. Subsequently, a consultation paper for public comments may also be issued on the matter. Steps regarding SPACs framework may be taken only after consultation with PMAC. The company law committee report of the Ministry of Corporate Affairs (MCA) of February 2022, recommended introducing an enabling provision to recognise SPAC under the Companies Act and allowing a SPAC incorporated in India on domestic and global exchanges.”

Published on May 19, 2022
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