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Crafting A Robust Regulatory Framework For SPACs in India - International Insights and Local Adaptations
Crafting A Robust Regulatory Framework For SPACs in India - International Insights and Local Adaptations
Crafting A Robust Regulatory Framework For SPACs in India - International Insights and Local Adaptations
In 2021, a whopping $160 billion was raised through SPACs in the USA. What
makes them stand out? Well, unlike regular ways of taking companies public,
SPACs offer a more predictable process, ensuring deals and prices are more
assured. Plus, they provide existing shareholders with a way to sell their
shares and exit the company once it goes public. This simplicity and speed
have made SPACs a popular choice in today's financial world.
KEY FEATURES OF SPACs
➔ Management of SPACs organised and managed by a sponsor, who is typically a sophisticated investor and commercial
operator with certain acquisition targets.
➔ Trust Account As a matter of practice, and to comply with jurisdictional regulations, the proceeds from the public
offer of the SPAC are held in a trust account
➔ Time Period of Target Acquisition SPAC is required to consummate the combination with an unlisted company (a
de-SPAC Transaction) within a specified time. If a de-SPAC transaction cannot be completed within the specified time
frame, the SPAC may either seek approval from its shareholders for an extension of the time.
Process of Target Acquisition Once the target is identified, approval of the majority shareholders (including public
shareholders and institutional investors) of the SPAC is sought for the combination with the identified target. The
dissenting shareholders also have the right to redeem their shares
➔ PIPE Transaction SPACs often raise additional funds from private investors in the form of private investment in public
equity (PIPE) transactions to reduce the financial impact of redemptions by dissenting shareholders
SPAC Life-cycle
Navigating the
Regulatory Maze:
Understanding SPAC
Restrictions in India
Restrictions on SPACs In India
Lack of Initial Business Objective:
SPACs, focused solely on acquiring unspecified private companies, don't meet registration criteria under Sections 7(1)
and 4(c) of the Companies Act 2013.
Cross-Border Challenges:
RBI Approval Requirement: Cross-border SPAC transactions must adhere to the Foreign Exchange Management (Cross
Border Merger) Regulations 2018, necessitating RBI approval. Investment Limitation-Indian shareholders face
limitations with the Liberalized Remittance Scheme, capping investments in overseas SPACs at USD 250,000 annually.
Challenges in Indian-Foreign SPAC Mergers
Indian firms merging with foreign SPACs must navigate the intricate requirements of the Companies
Act, 2013, and the Foreign Exchange Management Regulations, 2018. This involves court procedures and
clearance from the National Company Law Tribunal.
Share swap mechanisms, while potential solutions, face hurdles in India. Non-resident investors can use
an automatic route, but Indian investors encounter challenges due to ambiguous regulations, requiring
time-consuming RBI approvals. These complexities offset the advantages of SPAC structures.
COMPARING THE
SPACs FRAMEWORKS
USA
UK
Growth in SPAC formation, e.g., 15 SPACs listed in 2017, raising £1.7 billion.
Regulatory reforms discussed to attract growth companies.
Malaysia