Special purpose acquisition companies ("SPACs") as a concept have been around for many years but this year marks a special milestone with global SPAC IPO proceeds breaching the USD 100 bn mark. SPACs are blank cheque companies that raise money in an IPO and go on to acquire an unspecified business through a business combination. Once this business combination is achieved (referred to as de-SPAC transaction), the listed entity functions as a regular listed company.

Last month, India's largest renewable energy company – Renew Power started trading on NASDAQ through a SPAC listing. The deal generated quite a buzz for myriad reasons – the valuation outlined the considerable distress in the sector as also making it a fairly liquid investment through NASDAQ's wider investor base.

Even though the global interest for SPACs has increased considerably, which have been around for many years as a concept in matured jurisdictions like US – the framework is yet to find a foothold in India. Only very recently have we seen the Securities and Exchange Board of India ("SEBI") institute a committee of experts to examine the feasibility of bringing regulations for SPACs in India. At this stage, a SPAC framework for domestic listing for companies is some way ahead.

On the other hand, the International Financial Services Centres Authority Act ("IFSCA") which was passed in 2019 turned out to be coincidentally opportune. As the economic burdens of the pandemic emerged, so did the IFSCA Authority which became a unified regulator in October 2020 to develop and regulate financial institutions, financial services, and financial products within the International Financial Services Centres ("IFSCs") in India. Interestingly, IFSCA has already kicked off with its IFSCA (Issuance and Listing of Securities) Regulations, 2021 which bring the concept of SPACs at least to IFSCs. Understandably, not everyone will be eligible to list and the investor pool will also be limited as compared to what a SPAC in domestic market could do, but for many cash strapped Indian companies, this new framework will be a welcome development.

In this article, we explore the fetters in the current regulatory framework and the option for Indian companies to list in overseas exchanges through a reverse merger such as Renew Power. We also touch upon the emerging framework for SPACs in IFSCs and which companies should seek that route.

Regulatory hurdles in a SPAC transaction in India

To start with, the Indian company law regime mandates that a business is formed with a business objective and memorandum of association of a company is the document for the basis of registration. Therein, lies the issue at the outset as to what the SPAC is supposed to specify as its business objective. This of course is an impossible to meet criterion for a SPAC that has yet to identify a target and accomplish a business combination. In US, a SPAC is given 24 months to undertake the business combination which is extendable by a special shareholder resolution. In addition to all of that, from an Indian law perspective, any SPAC will have to go through the NCLT for an approval of a scheme of arrangement and that brings in its own set of uncertainty and timelines to consider.

From a securities law perspective, SEBI has certain eligibility criteria for listing which a SPAC is unlikely to meet at the time of an IPO. For instance, for listing purposes a company must have (i) an operating profit of INR 15 crores, net tangible assets of at least INR 3 crores and net worth of at least INR 1 crore respectively, for the last three years; or (ii) a company which is not satisfying the above mentioned conditions at (i) would be eligible to make an IPO only if the issue is made through the book-building process, the company undertakes to allot at least 75% of the net offer to qualified institutional buyers and to refund the full subscription money if it fails to do so. These are the main hurdles which the regulators must look into before domestic SPACs can become a reality – whether by introducing exceptions or bringing in a new framework altogether.

Issues with cross border SPAC transactions

So far, we discussed the impossibility of a SPAC's existence in India. But there is growing interest from SPACs in other countries to pick up Indian targets. It is evidence of this faith reposed by foreign investors in Indian unicorns, especially tech companies, that we are increasingly seeing US SPACs exclusively focused on opportunities in India.

At the outset, there are many benefits for Indian companies to choose a SPAC – the listing timeline on exchanges such as NASDAQ is faster and of course, the pool of investors is far wider than a domestic listing because investors also find more comfort in a company listed on NASDAQ vis-à-vis say, BSE or NSE.

However, there are certain issues to consider for such transactions. Foremost being the cross-border merger regulations in India, which would mandate RBI approvals for such transactions in addition to the NCLT's sanction of the scheme of arrangement. The merger would also result in the merging Indian entity's Indian offices becoming branch offices of a foreign company and the consequent restrictions applicable to those.

Another significant hurdle perceived for such transactions would be the current Liberalized Remittance Scheme ("LRS") limit of USD 250,000 per financial year. In case Indian shareholders are individuals getting shares in the overseas merged entity, the LRS mandates that the fair market value of shares acquired should be under USD 250,000/financial year, which is highly unlikely to be the case in such transactions.

One could consider a straight-forward share swap between SPAC and Indian target shareholders but there is a significant grey area in the foreign exchange regulations and ODI regulations to riddle the arrangement with uncertainty, as also a fair share of RBI approvals to be sought, which would make the transaction lengthy.

It is under these circumstances that Renew Power was listed on NASDAQ through a reverse triangular merger as follows:

  1. the exchange of equity shareholding of existing shareholders of ReNew Power Private Limited (Indian company) with shares of ReNew Energy Global Limited ("ReNew Global") – a holding company incorporated in England for the purpose of the business combination;
  2. thereafter, a wholly-owned subsidiary of ReNew Global merging with the NASDAQ listed SPAC - RMG Acquisition Corporation II; and
  3. Renew Global listing on NASDAQ under a new ticker symbol - RNW.

Emerging SPAC framework in IFSCs

IFSCA has recently come out with IFSCA (Issuance and Listing of Securities) Regulations, 2021 which introduce a listing framework for SPACs on the recognised stock exchanges in IFSCs, as follows. To be eligible for raising money through an IPO in IFSC stock exchange, a SPAC should not have identified the target business combination prior to the IPO and must adhere to certain provisions for redemption and liquidation in line with the regulations.

The sponsors of a SPAC must have good track record in SPAC transactions, business combinations, fund management or merchant banking activities. The regulations include within the ambit of sponsors persons holding any specified securities of the SPAC prior to the IPO.

The minimum issue size must be USD 50 million, the minimum number of subscribers should be 50 and minimum subscription received in the issue should be at least 75% of the issue size.

In terms of sponsor shareholding and lock-in requirements, the sponsor should hold at least 15% but not more than 20% of the post-issue paid up capital of the SPAC as well as have an aggregate subscription prior to, or simultaneous to the IPO of at least 2.5% of the issue size or USD 10 million, whichever is lower.

The regulations also mandate that the SPAC issuer must complete the business combination within a maximum of 36 months from the date of listing.

The regulations also provide in detail the IPO process to be followed, disclosures in the initial offer document as well as continual disclosure requirements, SPAC specific obligations etc.


SPACs are the investor's sweet spot - with money in hand to go shopping for the right business as opposed to identifying a target first and then deal with uncertainty of fund raising.

However, if the government wants to sail on this ship - we need a regulatory framework comparable in its ease to those in foreign jurisdictions because the very essence of SPACs lies in neutralising capital markets boundaries. Great companies which are fund strapped in India can with great ease access capital on NASDAQ following the path laid down by Renew Power's listing on NASDAQ.

There is a reason why 2020 was the year for SPACs in US. Nearly 2 years in the pandemic era, the SPAC regime is the light at the end of tunnel for investors and targets alike especially those looking to bypass the traditional IPO route.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.