InvestorQ : Can you tell me about why SEBI has formed this special committee for SPACs and what do these SPACs actually do?
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Can you tell me about why SEBI has formed this special committee for SPACs and what do these SPACs actually do?

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1 month ago
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In the global IPO market, the latest thing is all about SPACs. Not to be left too far behind and with interest shown by Indian companies like Flipkart and Grofers in listing in the US using the SPAC model, the regulator has opted to move in quickly and take the initiative. SEBI has moved quickly to form a group of experts to make a detailed study the feasibility of Special Purpose Acquisition Companies or SPAC-like structures in India.

In the first three months of the current year, these SPAC structures have raised over $80 billion and have almost become equal to the IPO market. In short, the SPAC structures have suddenly taken off in a big way in the US. With the growing appetite for such structures as a means of listing in the US, the SEBI has asked the expert group to explore the potential of SPACs and also advise on building adequate checks and balances in regulatory framework.

Let us also quickly look at what these SPACs are and how they work. These SPACs are formed merely to raise capital via IPOs. Once the IPOs are done and units issued, then these SPACs will the proceeds to merge a target company. Normally, the SPAC has to use the money raised and deploy them within 2 years failing which the funds have to be returned to the shareholders. Shareholders can also vote to accept or reject any merger proposal.

What is in it for the target company? For the target company, the SPAC becomes a much shorter and simpler route to list their stock in stringent markets like the US. IPO process is long winding and entails lot of heavy compliance. However, in India, the introduction of the SPAC concept may need changes to the Companies Act, 2013. That is because, in India companies are required to commence operations latest within 1 year of incorporation.

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