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SPAC- Blank Cheque Companies in India

Updated: Sep 24, 2021

An Intro to the world of ‘backdoor IPOs’ Companies have three ways of going public and raising capital: - (1) Traditional IPO (2) Direct Listing (3) Backdoor listing- merger with a public company. Special Purpose Acquisition Companies (SPACs) is one among the latest mode of backdoor listing. In India SPAC have been in the news for quite some time in the wake of India’s biggest renewable energy company, ReNew Power, opting this route to list itself on NASDAQ. ReNew has announced a business combination with RMG Acquisition Corporation II, a US-based SPAC. In the coming months, the escape of Indian companies to the United States securities market is only expected to increase as Dream11, or Grofers amongst others, are considering the US-SPAC route. What is SPAC? A SPAC is an investment vehicle used by institutional investors to raise money for potential acquisitions. Commonly referred to as “blank cheque companies”, SPAC are formed with the sole purpose of acquiring another company (target company) and do not have any other commercial operation. SPAC is operated though management team referred to as sponsors. Sponsors are usually highly experienced people with well-established track record and having handful understanding of market and industries. Investors who invest in such instruments are not aware of who the eventual acquisition target will be. Sponsors are supposed to identify the target to complete the business combination. Until the time the SPAC makes an acquisition, the money raised is parked in an interest-bearing trust account. SPAC is required to complete the business combination with one or more private businesses within the time stipulated in charter documents (normally 18-24 months) subject to the approval of shareholders. Else, the proceeds from SPAC-IPO are returned to the investors with interest. The acquisition of the target company (for example via consolidation/merger) is known as “de- SPAC” transaction. If additional funds are required for acquisition of target, SPAC may raise the requisite funds from PIPE investors. Once the SPAC makes an acquisition, investors get the option to swap their existing shares for the merged company’s or liquidate it for returns. What is PIPE investment? Private investment in public equity often called a PIPE deal, involves issuing shares of a public company to private investors. It is an allocation of shares in a public company not through a public offering in a stock exchange. PIPE deals are part of the primary market. In the context of SPAC, a SPAC may seek PIPE Investment if it require additional fund for acquisition of Target Company. SPAC and the startup in India With more than 40,000 start-ups, 40 tech unicorns and a whopping 10 more added in 2021, India is recognized as one of the largest startup ecosystem globally. SPAC framework may lift startups by opening up new avenues for capital inflow. In order to sustain a high rate of growth startups, which are hitherto unable to conform to the stringent norms of listing, can raise money from the capital market. Access to sponsor expertise with global knowledge and vast experience the shortcoming of limited management bandwidth can be overcome.

Regulatory framework in India

In India, there is no precise and detailed regulation in place concerning SPACs, barring the IFSCA (Issuance and Listing of securities) Regulations, 2021.The International Financial Services Centre Authority (IFSCA) had released the IFSCA Regulations specifying the regulatory provisions on the issuance and listing of SPACs on the IFSC's recognized stock exchanges.

India’s market regulator, Securities and Exchange Board of India (SEBI) has also instituted a committee of experts to examine the feasibility of bringing regulations for SPACs in India.

Regulatory challenges for SPACs in India

1) As per Section 248 of the Companies Act, if the company fails to commence its business within one year of its incorporation the Registrar of Companies (RoC) has the power to remove a company's name from the register of companies. In case of SPACs, the typical acquisition timeline is around 18 months or more. This clause in the Act presents a major hurdle for SPAC implementation in India.

2) Listing norms of India mandate a track record of profits and net tangible assets. According to Regulation 6(1) of the ICDR Regulations 2018, a company should have had minimum INR 3 crore net tangible assets for the preceding three years, and an average operating profit of at least INR 15 crore during the preceding three years and a net worth of at least INR 1 crore in each of the preceding three years to be eligible to proceed with an IPO. Nonetheless, SPACs are fundamentally shell companies till the De-SPAC process is completed and this provision is unquestionably a stumbling block for these blank check companies to being floated on any recognized Stock Exchange.

3) A De-SPAC process from the Indian laws standpoint is a reverse merger, subject to high Stamp Duty levy which makes the business combination unappealing in the current scenario.


Given the current laws are detrimental to the development of SPAC in India; there is an urgent need on the part of regulators to redesign the laws and prescribe adequate guidelines to unlock the true value of this structure.

Shikha Mittal



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