As Indian Startups Explore SPACS Abroad, SEBI Considers Framework To Promote Domestic Listings

India’s securities and market regulator the Securities and Exchanges Board of India (SEBI) plans to build a dedicated framework on Special Purpose Acquisition Companies (SPAC) to allow such ‘non-operational’ entities to also raise funds in initial share sales and list locally, according to reports. Currently, SEBI allows listing of only operational companies with reported financials.

To allow SPACs in India, SEBI has to either introduce a separate law or amend current regulations to allow listing of ‘non-operating’ or ‘investment’ companies, industry officials aware of the development told ET.

In March, SEBI tasked its primary market advisory committee (PMAC) with submitting a report on SPACs in India, along with “adequate checks and balances” to mitigate risks or complexities in the SPAC route under current Indian law.

With SPACs seeing traction and momentum in the US and other western markets, there has been increasing demand that SPACs should be regulated and allowed in the Indian market as well to ease listing of startups, which are typically not able to satisfy the government’s profitability criteria for a traditional public listing through an initial public offering. A SPAC is a development stage company, also known as a blank-check firm, with a business plan centred around a merger or acquisition with another company, before going public.

“The market regulator wants to protect the minority shareholders who would invest in these structures,” a person close to the development was quoted as saying. “Stricter rules around returning the money, if the structure is unable to acquire anything, are required.”

Therefore, at least one of the recommendations of the SPAC-focussed committee is to ‘limit’ retail participation to protect small investors, said another person aware of the line of thinking at SEBI. SPACs would largely target bulge-bracket foreign investors that want a piece of some unlisted companies, such as Indian unicorns, which may get listed abroad in the future.

“SPAC is not like a company per say; so assigning responsibility in case of a corporate governance issue also becomes crucial,” said another person close to the development. “SEBI regulations would also go into this, as often the listed entity may have more than one company under its umbrella, which again could have separate promoters and auditors.”

Reports last year suggested that Flipkart may go public as early as 2022 at a valuation of $45Bn-$50 Bn. The ecommerce giant was said to be looking at an overseas IPO, either in the US or Singapore. Flipkart was also said to be looking at the special purpose acquisition company (SPAC) route to get listed in the US.

In February, the Indian government relaxed some rules around foreign listings for Indian startups. It clarified that Indian tech companies that choose to list on overseas stock exchanges would not be considered as listed companies in India. Until now, companies that raised funds from public investors on overseas exchanges were considered as listed companies in India as well, and subject to stringent rules and regulations mandated by SEBI. These include disclosures on a quarterly basis to the regulator on the financial performance as well as corporate governance.

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