SEBI expected to issue framework regulating SPACs in India

SPAC’s, which are already popular in the United States, entail the creation of a blank cheque company to raise capital through an Initial Public Offering(IPO). The proceeds from the IPO are then used to merge the SPAC with a target company.

The markets regulator SEBI is expected to come up with a framework that would govern the special purpose acquisition companies (SPACs) in India. SPAC’s, which are already popular in the United States, entail the creation of a blank cheque company to raise capital through an Initial Public Offering(IPO). The proceeds from the IPO are then used to merge the SPAC with a target company.

Currently, the Indian regulators don’t allow the formation of SPACs. However, SEBI is now working towards allowing them under a proper framework that would regulate the listing, criteria for sponsor, acquisition timeline and delisting of such companies. Sources have told Business Insider India that SEBI had created a group of experts in March to look at the feasibility of bringing SPACs to the country.

For IPO’s, SPAC’s would be required to follow a minimum threshold price, according to a report by Business Insider India. Further, the sponsor for the IPO may be required to be a senior individual possessing experience in working for public companies. Under the new framework, the concerned sponsor might be required to have a minimum investment in SPAC and retain it for some time even after merger with a target company.

Vikas Bagaria, audit and assurance partner at Deloitte India, believes that the sponsor must hold a 10%- 20% stake in the merged company. He adds that the blank cheque company should be given a time of 24 to 26 months for finishing the process of the merger.

The proposed framework may also empower shareholders of a SPAC by defining a percentage of investors who need to agree for an acquisition to go through. Those who disagree with the acquisition are likely to be given an option to redeem their securities.

Bagaria further explained that changes would be required to the Companies Act of 2013 and the delisting rules in order to introduce SPACs in India.

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