Markets regulator Sebi plans to come out with a framework for SPACs:
Capital market regulator Sebi plans to postpone a special target acquisition structure (SPAC) with which new assets can be listed on local exchanges, sources said on Thursday.
The regulator is expected to present the guidelines next week, he added.
SPAC or empty companies were established to raise capital in an initial public offering (IPO) to use the proceeds to identify and merge a target company.
SPACs usually consist of private equity funds or financial institutions, with experience in a particular industrial or commercial sector, with an initial investment in working capital and associated expenses. These companies have recently become popular in the United States.
There is also an increasing demand for admission to SPAC in India.
As part of the framework, Sebi may introduce a separate set of SPAC regulations, under which complex listing rules will be provided for these companies. According to sources, it has a minimum size for a bag.
The regulator must provide sponsorship qualification criteria to ensure that only experienced and advanced individuals with senior management issues and public company experience are eligible as sponsors of a SPAC vehicle exchange.
The founder or sponsor may be required to invest a minimum amount of initial capital and invest during the new facility, even for a specified period after SPAC during the new facility.
Vikas Bagaria, auditor and insurance partner of Deloitte India, said a founder or sponsor should remain invested for a period of 12 to 18 months after the reverse merger of the target company with SPAC.
Once the SPAC is reduced, they will have to own between 10% and 20% in the resulting entity, he added.
According to him, the SPAC vehicle must be 24 months to 36 years old to complete the acquisition.
He also said that apostate shareholders should have the option to pay for the investment if individual investors do not approve the merger through the SPAC sponsor.
SPAC’s listing rules may define the obligation of due diligence, audits, financial reporting control structures in the preliminary documents regarding the target companies to be clarified with Sebi before the merger is registered for approval by the shareholders of SPAC.
The framework is likely to impose a condition of not proceeding with the qualifying acquisition proposal if more than a predetermined percentage of the government bondholders vote against the proposed acquisition.
Treasury holders voting against a qualifying purchase may be allowed to redeem their bonds for their proportionate share of the guarantee funds.
Bagaria said several changes to the current regulatory framework are needed to enable the reverse merger of the private sector with a SPAC.
It included amendments to the Companies Act 2013 to define SPAC vehicles as a separate entity and changes to the cancellation rules to complete the SPAC cancellation within a specified period of 24 to 36 months.
Currently, Sebi (Requirements for the issuance and disclosure of shares) does not offer listing options for companies with a blank check. In addition, it sets limits that result in only commercial companies being eligible for an Indian stock exchange.
Although SPACs, according to industry experts, have different benefits, they also have different regulatory issues.
For public shareholders, SPACs offer the advantage of investing in private equity transactions with SPAC sponsors.
The advantage for the sponsor is that he can quickly use the capital to seize opportunities. It also supports the target enterprise acquired by SPAC, which announces itself in times of instability or volatility in traditional IPO markets.
According to Bagaria, Indian private unicorn companies are worth more than $ 1 billion in industries such as fintech, educational technology, healthcare, consumers, food delivery and mobility, and e-commerce.
He said these new-age companies are raising capital and are now at the forefront of India’s start-up ecosystem. However, the current bidding options available to these unicorn companies in India are limited.
“The SPAC framework provides important opportunities for public and private investors to participate in the acquisition of private companies through SPAC’s Indian investment vehicle,” said Bagaria.
It also offers founders and investors of private enterprises liquidity, visibility.