To allow SPACs in India, Sebi has to either introduce a separate law or amend current regulations to allow listing of ‘non-operating’ or ‘investment’ companies, industry officials aware of the development told ET.
Under a blank-cheque company, as SPACs are known in the US, first a company is listed on the capital market and raises a particular sum. A company is created for the sole purpose of raising capital through an initial public offering (IPO). SPACs would only declare what they plan to do—the types of M&A targets on their radar. Then they are allowed a specific time period—18 to 24 months in the US, for instance—to acquire these companies. But if they can’t, they return the money to the investors.
Given the risks associated with the SPAC business model, the Sebi framework must prioritise the needs of retail investors and minority shareholders.
“The market regulator wants to protect the minority shareholders who would invest in these structures,” said a person close to the development. “Stricter rules around returning the money, if the structure is unable to acquire anything, are required.”
Therefore, at least one of the recommendations of the committee is to ‘limit’ retail participation to protect small investors, said another person aware of the line of thinking at Sebi. SPACs would largely target bulge-bracket foreign investors that want a piece of some unlisted companies, such as Indian unicorns, which may get listed abroad in the future.
“SPAC is not like a company per say; so assigning responsibility in case of a corporate governance issue also becomes crucial,” said another person close to the development. “Sebi regulations would also go into this, as often the listed entity may have more than one company under its umbrella, which again could have separate promoters and auditors.”
The Companies Act, 2013, would also need necessary amendments before these structures are floated in India.
had formed a committee in March this year to examine if “SPAC-like structures” could work in India, said people in the know. Over the past few months, several Indian companies have used the SPAC route to get listed in the US and other overseas markets.
Sebi’s regulations come at a time when many Indian companies are looking to explore the SPAC route in the US. The regulator is reportedly concerned about maintaining control over Indian companies that become linked to SPACs in the US.
Indian start-ups and companies are hoping to raise billions of dollars through SPACs. There are at least a dozen companies that will get listed in the US through the SPAC route by the end of this year, say industry trackers.
There are also concerns around tax issues, and these might make SPACs unattractive to local retail investors.
“Today, Indian investors may not be too comfortable investing in a structure that doesn’t have any underlying operating assets or business when it is listed and where such entities would acquire assets/business in the future,” said Uday Ved, a partner at tax advisory firm KNAV. “SPAC structures have been operational in the US for more than a decade and it could take time—and strict regulations—for this to work in India.”
Experts say that while some Indian companies have used the SPAC route to get listed in the US, there are several problems as well.
“Indian companies currently can’t list overseas and that could impact valuations that some of the unicorns could fetch if they list in India instead of the US,” said Girish Vanvari, founder of tax advisory firm Transaction Square. “Some Indian companies have raised funds through SPAC but some issues remain.”
According to people in the know, some of the issues around taxation are also being looked at when transferring a company—either through a reverse merger or any other route—into SPAC.
Meanwhile, the government is already working on allowing Indian companies to directly list abroad, as announced in the budget.