Government to consider Special Purpose Acquisition Companies (SPACs)

The government is reportedly considering a regulatory framework for special purpose acquisition companies (SPACs) to lay the ground for the possible listing of Indian companies through this route in the future.

Context

The government is reportedly considering a regulatory framework for special purpose acquisition companies (SPACs) to lay the ground for the possible listing of Indian companies through this route in the future.

About SPACs

• The special purpose acquisition companies (SPACs) or a blank-cheque company, is an entity specifically set up with the objective of acquiring a firm in a particular sector.
• An SPAC aims to raise money in an initial public offering (IPO) without any operations or revenues. 
• The money that is raised from the public is kept in an escrow account, which can be accessed while making the acquisition.
• If the acquisition is not made within two years of the IPO, the SPAC is delisted and the money is returned to the investors.
• While SPACs are essentially shell companies, a key factor that makes them attractive to investors are the people who sponsor them. 

• Globally, prominent names such as tennis star Serena Williams, Dell Technologies founder and CEO Michael Dell, billionaire and venture capitalist Vinod Khosla etc. have participated in SPACs.

Background

• The Company Law Committee, which was set up in 2019 to make recommendations to boost ease of doing business in India, has made this suggestion in its report submitted to the government recently.

Status of SPACs in India

• The gross proceeds raised by SPACs amounted to over $83 billion in 2020 and $162 billion in 2021.
•  The number for 2022 has crossed $10 billion already.
• In 2021, renewable energy producer ReNew Power announced an agreement to merge with RMG Acquisition Corp II, a blank-cheque company, in what became the first involving an Indian company during the latest boom in SPAC deals. 
• As of now, the Indian regulatory framework does not allow the creation of blank cheque companies. 

The Companies Act, 2013 stipulates that the Registrar of Companies can strike off a company if it does not commence operations within a year of incorporation.