SPAC-like structures have been in existence for years now, floated mainly by private equity players. But of late, they have gained popularity in the developed markets. These structures are also called ‘blank cheque companies’ since investors, other than those setting these up, usually do not know for which acquisition target or the assets of a company they are putting in money till those are bid for by the SPAC. This aspect inherently makes these structures a risky proposition for retail investors, market players said.
On Thursday, Sebi formed a committee to examine the feasibility of introducing SPAC-like structures in India, news agency PTI reported. The decision by Sebi came a day after IFSCA chairman Injeti Srinivas said the regulator was on track to come up with its own regulatory framework “to facilitate startups to raise capital through sale of equity”.
The development comes even as the corporate affairs ministry is pushing for norms on direct listing of companies on foreign stock markets — an issue that has been hanging due to the reluctance of the revenue department to give up its right to tax the capital gains. While ReNew Power has already announced its plans to use the SPAC route to raise funds, others such as Grofers are exploring the option with more Indian companies expected to join the bandwagon in the coming months.
Sebi has mandated its Primary Market Advisory Committee (PMAC) to look into this structure and submit its report at the earliest, the report said. Sebi wants to explore the potential of SPACs while at the same time building adequate checks and balances in a regulatory framework to take care of the associated risks.
The Sebi committee on SPAC will have to address several regulatory challenges for these structures. Among those are if retail investors could be allowed to invest in these structures, given the high risks associated with SPACs. If they are allowed, what kinds of safeguards they should have, including at what stage these investors could be allowed. There are legislative challenges to SPACs. “As per the Companies Act, 2013, a company is required to commence business within one year of incorporation. This may not suit a SPAC which may not have business for nearly two years,” a company secretary was quoted as saying in the report.
IFSCA, which operates in a relatively new and emerging environment where several of the Indian laws are not applicable, intends to develop as a global business hub and wants to move with the global trends in the sphere of business and finance.
“We are soon coming up with the SPAC regulatory framework because that is the flavour of the day. When it comes to startups, they are not very well known entities. If they themselves come with an IPO, there may not be many takers,” Srinivas said at a Ficci conference. “So, some established players with a blank cheque company will come and they with their credibility will mobilise money and then identify a proper target company and merge with that, in a two-year or three-year time span,” he said.