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Regulatory framework for special purpose acquisition companies (SPACs):

GS Paper 3:

Topics Covered: Indian economy and issues related to planning and governance. .

 

Context:

The government is reportedly considering a regulatory framework for special purpose acquisition companies (SPACs).

 

What are SPACs?

  • An SPAC, 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.

 

Why are they attractive?

While SPACs are essentially shell companies, a key factor that makes them attractive to investors are the people who sponsor them.

Globally, prominent names have participated in SPACs.

 

Associated concerns:

  • In March last year, the US Securities and Exchange Commission (SEC) issued an investor alert on SPACs, cautioning investors “not to make investment decisions related to SPACs based solely on celebrity involvement”.
  • There may be lesser returns for retail investors post-merger.
  • Certain clauses could potentially prevent investors from getting their monies back.

 

Where does India stand?

Of the 1,145 IPOs by blank-cheque companies since 2009, 248 happened in 2020, 613 in 2021, and 58 in 2022 so far.

  • 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.

 

Insta Curious:

Did you know that the Company Law Committee, which was set up in 2019 to make recommendations to boost ease of doing business in India, has suggested the government to set up SPACs?

 

InstaLinks:

Prelims Link:

  1. SPACs.
  2. The Company Law Committee.
  3. Shell Companies.
  4. Companies Act.

Mains Link:

Discuss the concerns associated with SPACs.

Sources: Indian Express.