Special Purpose Acquisition Companies (SPACs) offer an accelerated route to public markets but carry unique governance, valuation and regulatory challenges. While SPACs have surged globally—accounting for over a third of IPOs in H1 2025—India is still designing safeguards to balance capital access with investor protection.stout
1. What Are SPACs?
A SPAC is a “blank-cheque” shell company that raises capital in an IPO, then identifies and merges (“de-SPACs”) with a private target within a set timeframe (typically 18–24 months). Investors buy into the SPAC IPO largely on the reputation of its sponsors—seasoned financiers or corporate executives—who earn equity and warrants as compensation. If no acquisition occurs by deadline, funds (minus fees) are returned to investors.
2. SPACs’ Meteoric Global Rise
After a lull in 2022–24, SPACs roared back in 2025. In Q1 2025, SPAC IPOs constituted 24% of all U.S. listings (19 offerings), raising an average $148 million each and roughly matching traditional IPO proceeds per deal. By mid-2025, SPACs accounted for 37% of global IPO volume—underscoring renewed sponsor accountability, stricter disclosures and institutional PIPE (private investment in public equity) support under the “SPAC 2.0” model.ideagen+1
3. Why SPACs Appeal in India
For high-growth Indian startups—think tech, renewables and pharmaceuticals—SPACs promise a faster, less dilutive path to raising large pools of capital and gaining public liquidity without tying valuations to volatile book-building windows. Retail investors also gain earlier access, rather than waiting for a traditional IPO slot.
4. Regulatory Landscape in India
India’s capital markets regulator, SEBI, has yet to finalize SPAC rules. The Primary Market Advisory Committee is actively deliberating on:
- Sponsor Eligibility: Minimum track record, net worth and independent director requirements to ensure credible leadership.
- Escrow Safeguards: Mandating ≥90% of IPO proceeds be held in escrow, with independent custodians overseeing refunds if no deal closes. theadvocatesleague
- Investor Protections: Restricting retail participation thresholds, prescribing mandatory pre-deal due diligence and guaranteeing redemption rights for dissenting shareholders.
- Listing Venue: Draft IFSCA regulations under the GIFT City framework envisage permitting SPAC listings in India’s International Financial Services Centre, granting tax neutrality on offshore share transfers and broader foreign investor access.irccl
5. Key Challenges
- Valuation Transparency: Early SPAC-era abuses—overpriced targets and sponsors’ windfalls—prompt calls for earn-out provisions, extended lock-ups and deferred sponsor compensation tied to post-de-SPAC performance. bostoninstituteofanalytics
- Liquidity Premium: Unlike term LIBOR, SPACs rely on nascent PIPE and derivatives markets for hedging; India must cultivate secondary-market liquidity for de-SPAC shares.
- Tax & FEMA Constraints: Current Indian tax rules treat share swaps in offshore de-SPAC mergers as taxable capital gains, potentially deterring inbound listings unless eased under the Liberalised Remittance Scheme. ccl.nluo
- Corporate Governance: Assigning liability across multi-entity SPAC structures and ensuring financial reporting pre- and post-merger will demand clear statutory amendments to the Companies Act, SEBI ICDR Rules and FEMA Regulations. theadvocatesleague
6. Global Lessons for India
- Stringent Disclosure Regimes: U.S. SPAC 2.0 mandates SEC-style S-1 filings for de-SPAC deals, detailed sponsor track records and ongoing reporting—frameworks India can emulate under SEBI ICDR amendments.
- Investor Vetting: The U.K. and Europe have adopted “unicorn lists” and pre-approval processes to qualify SPAC sponsors, reducing bad-actor risk.
- Market-Making Incentives: The U.S. introduced specialist market-makers to buttress SPAC share liquidity; India could incentivize merchant bankers and trading members similarly.
7. Market Outlook and Opportunities
- Pre-Approved Targets: Indian SPACs may initially focus on asset-light sectors—renewable energy platforms, digital finance firms and mid-cap conglomerates with stable cash flows.
- Cross-Border De-SPACs: Overseas SPAC sponsors eyeing Indian unicorns (e.g., ReNew Power’s 2021 US SPAC merger) signal inbound demand; formalizing onshore SPAC listings could magnetize global capital while preserving Indian regulatory oversight.
- Hybrid Structures: Combining SPACs with private investment vehicles (PIPE + SPAC) can deepen capital pools and mitigate single-deal execution risk.
Conclusion:
SPACs straddle the frontier between innovation and risk. For India, crafting a bespoke framework—blending robust sponsor vetting, escrow safeguards, tax rationalization and post-listing governance—will be crucial. Properly regulated, SPACs can democratize access to high-growth opportunities, bolster India’s capital markets and attract global funds—fueling the next wave of entrepreneurial growth.
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