This article is written by Sowmya Burka during her internship with Le Droit India.
Introduction
In recent years, Special Purpose Acquisition Companies (SPACs) have emerged as a popular and innovative method for companies to raise capital and become publicly listed without undergoing the traditional Initial Public Offering (IPO) process. Originally gaining traction in the United States, the SPAC model has since attracted global attention, including growing interest in India. Despite this interest, India’s current legal and regulatory framework presents challenges to the successful implementation of SPACs.
This article explores the structure and functioning of SPACs, their global development, and the legal viability of adopting this model within the Indian context. It further analyzes the compatibility of SPACs with existing Indian corporate laws and examines the potential scope for their future in India.
What is a SPAC?
A Special Purpose Acquisition Company is essentially a “blank cheque” entity created solely to raise capital through an IPO, with the intention of acquiring or merging with an existing private company. A SPAC has no commercial operations at the time of formation and only gains operational significance after it merges with the target company.
Lifecycle of a SPAC:
1. Formation: Sponsors or promoters incorporate a SPAC with minimal capital. 2. IPO: The SPAC raises funds from public investors through an IPO.
3. Trust Account: Funds are placed in a trust or escrow account until an acquisition is identified.
4. Target Search: The SPAC has a set period (usually 18–24 months) to identify and merge with a private company.
5. De-SPAC Process: The merger takes place, and the private company becomes a publicly traded entity.
Investors have the option to withdraw their money if they do not approve of the proposed merger, thereby reducing their risk. This flexibility and faster route to public markets make SPACs attractive, especially to startups and high-growth companies.
Why are SPACs Popular?
Advantages:
– Faster Route to Listing: Traditional IPOs are time-consuming and expensive. SPACs offer a quicker alternative.
– Less Regulation Initially: Since the SPAC has no business at first, its IPO process is simpler.
– Attracts Startup Investment: Startups that need funding and want to list on stock markets can benefit from SPAC mergers.
Risks:
∙ Dilution: SPACs often dilute public shareholders through founder shares and warrants. ∙ Sponsor Misalignment: Incentives may pressure sponsors to pursue subpar deals.
∙ Underperformance: A study by Renaissance Capital (2021) revealed that over half of SPACs underperformed compared to benchmarks post-merger.
Global Framework and Trends
In the United States, SPACs are governed by the Securities Act of 1933 and the Securities Exchange Act of 1934. The U.S. Securities and Exchange Commission (SEC) has issued various regulations on disclosures, accounting, and investor protections related to SPACs.
Countries like Singapore and the United Kingdom have also introduced their own SPAC frameworks. Singapore Exchange (SGX) allows SPACs with rules on minimum market capitalization (SGD 150 million), time limits for mergers, and investor redemption rights. The
London Stock Exchange has similarly updated its listing rules to accommodate SPACs, ensuring transparency and investor protection.
These developments show that SPACs can be regulated successfully when balanced with proper safeguards.
SPACs in India: What’s the Legal Position?
Currently, SPACs are not officially recognized in Indian law. There is no clear framework under the Companies Act, 2013 or SEBI regulations that allows Indian companies to register as SPACs or raise capital this way.
Have Indian Companies Used SPACs?
Yes, but mostly abroad. Several Indian startups and companies have chosen to list on U.S. exchanges via SPAC mergers. Examples include ReNew Power and Gogoro India, which merged with foreign SPACs to become public companies.
1. ReNew Power
∙ In February 2021, ReNew Power merged with RMG Acquisition Corporation II, a U.S. SPAC, resulting in a Nasdaq listing in August 2021 under the ticker RNW.
∙ This deal valued the combined company at about $8 billion, making it India’s largest SPAC transaction to date.
∙ It marked the first time an Indian renewable energy firm went public through a SPAC. 2. Gogoro India
∙ Gogoro used the SPAC-fueled capital to expand globally — including India, where it launched a battery swapping pilot with partners like Hero MotoCorp, Zypp Electric, and HPCL.
∙ Although the company is active in India, its SPAC listing happened in the U.S., not in India.
3. Yatra Online
In 2016, Yatra Online, a travel-booking platform, went public by merging with Terrapin 3 Acquisition Corp., another U.S. SPAC.
4. Videocon d2h
Merged with Silver Eagle Acquisition Corp in 2015, listing on NASDAQ before a subsequent merger with Dish TV India.
Indian Legal Framework and Challenges
India currently lacks specific laws or regulations that directly recognize or support SPACs. Several existing provisions in Indian corporate, securities, and foreign exchange laws pose difficulties to the adoption of the SPAC model.
1. Companies Act, 2013
∙ Section 248 empowers the Registrar of Companies (ROC) to strike off companies that have not commenced business within one year or have remained inactive for two consecutive years. Since SPACs are intentionally non-operational in their initial phase, they risk being struck off as shell companies.
∙ The Act does not explicitly provide for companies formed for the purpose of acquisitions, creating legal uncertainty about their status.
2. SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018
∙ These regulations require companies to have at least three years of profitability and a specific business track record to list on the stock exchange.
∙ Since SPACs do not have existing business operations or profits, they fail to meet these eligibility norms. Moreover, detailed disclosure requirements and minimum public shareholding thresholds are difficult for SPACs to comply with.
3. FEMA and RBI Guidelines
∙ Cross-border SPAC deals may fall under the scrutiny of FEMA, especially if they involve round-tripping of funds, where Indian residents invest in a foreign SPAC that later acquires an Indian entity.
∙ SPAC-related mergers involving foreign investors must comply with FDI norms and sectoral caps, which vary across industries.
SEBI and IFSCA’s Current Position
Although SEBI has not issued dedicated regulations for SPACs, it has shown openness to the idea. The International Financial Services Centres Authority (IFSCA), the regulator for GIFT City, has taken a more progressive approach.
In 2022, the IFSCA released a consultation paper proposing a framework to allow SPACs to be listed on exchanges in the GIFT IFSC. The key proposals included:
∙ A minimum SPAC size of USD 50 million
∙ A 36-month deadline to complete a business combination
∙ Mandatory escrow of IPO proceeds
∙ Investor redemption rights
If implemented, this could make GIFT City a pilot location for SPAC activity in India, allowing regulators to observe and adapt before considering wider adoption.
Future Scope of SPACs in India
SPACs have strong potential in India, especially given the country’s growing number of startups and unicorns looking for efficient ways to go public. As global investors and Indian entrepreneurs show more interest in SPACs, there is increasing pressure on Indian regulators to modernize the legal framework.
The GIFT IFSC could serve as a testing ground for SPACs, helping Indian policymakers gain experience and confidence. Over time, with regulatory clarity and proper safeguards, SPACs could become a regular feature in India’s capital markets. This would benefit startups, provide investors with new opportunities, and improve India’s image as a global financial hub.
What Can India Learn from Other Countries?
Singapore and the UK allow SPACs, but with strict rules to protect investors:
∙ A deadline to find a target (usually 2 years)
∙ The right for investors to get their money back
∙ Minimum size requirements.
Country Key Features
USA SEC oversight, SPAC IPOs, strict disclosure
Singapore Sponsor lock-in, minimum market cap, escrow
UAE Clear SPAC rules, foreign listing allowed
UK Shareholder vote before de-SPAC, investor redemption
India can borrow features such as:
∙ Lock-in periods for sponsors
∙ Escrow accounts for IPO proceeds
∙ Minimum market capitalization thresholds
∙ De-SPAC timeline enforcement
Recommendations for Regulatory Reform
To enable SPACs in India, the following steps are recommended:
1. Introduce SPAC-Specific Regulations: SEBI should create a separate framework under the ICDR Regulations for SPACs, with tailored eligibility norms.
2. Update the Companies Act: Amend the Act to recognize companies formed for the sole purpose of mergers or acquisitions.
3. Pilot in GIFT City: Use the GIFT IFSC as a controlled environment to test SPACs and collect data on risks and benefits.
4. Protect Investors: Require features like escrow of IPO proceeds, mandatory redemption rights, and strict disclosure standards to build investor confidence.
5. Clarify Cross-Border Rules: SEBI, RBI, and the Ministry of Finance should collaborate to provide clear guidelines for foreign SPACs acquiring Indian companies, especially to prevent round-tripping and ensure FDI compliance.
Conclusion
SPACs present a new and promising way for companies to raise capital and list on stock exchanges, with speed and efficiency. While the model has succeeded in several global markets, Indian laws currently lack the flexibility to accommodate such entities. However, with growing interest and regulatory willingness to experiment—particularly at GIFT City—India has the opportunity to adopt SPACs in a safe and structured way.
By creating dedicated rules and learning from international best practices, India can unlock a new pathway for business growth, innovation, and financial inclusion.
References
1. SEBI Discussion Paper on SPACs, 2021
2. Companies Act, 2013
3. SEBI ICDR, LODR, and SAST Regulations
4. FEMA (Overseas Investment) Rules, 2022
5. SGX SPAC Listing Rules (Singapore Exchange)
6. Renaissance Capital: SPAC Research 2021
7. IFSCA Framework for Capital Markets, GIFT City
Case Study: ReNew Power and RMG Acquisition Corp II – A Landmark SPAC Deal https://www.businesswire.com/news/home/20210823005631/en/ReNew-Power-Completes Business-Combination-with-RMG-Acquisition-Corporation-II?utm_source=chatgpt.com
�� Background
ReNew Power is one of India’s largest renewable energy companies, founded in 2011 by Sumant Sinha. The company operates in solar, wind, and hybrid energy segments and has grown rapidly due to India’s clean energy push.
In early 2021, ReNew Power announced a merger with RMG Acquisition Corp II, a U.S.-based Special Purpose Acquisition Company (SPAC). The transaction was one of the largest ever involving an Indian company via the SPAC route.
�� Key Deal Details
| Attribute | Description RMG Acquisition Corp II Delaware, USA |
| SPAC Name | |
| Jurisdiction |
Attribute Description
SPAC Listing NASDAQ
Target Company ReNew Power Pvt. Ltd.
Deal Value Approx. $8 billion
Sponsor Group Riverside Management Group, Robert Mancini Post-Merger Entity ReNew Energy Global PLC (listed as RNW on NASDAQ) Transaction Close Date August 2021
�� Deal Structure
∙ ReNew Power’s shareholders (including Goldman Sachs, Abu Dhabi Investment Authority, CPPIB, and JERA) rolled over their equity into the new public company.
∙ The transaction included:
∙ $1.2 billion in PIPE (Private Investment in Public Equity) funding. ∙ Proceeds used to fund capital expenditure and debt repayment.
∙ ReNew Energy Global PLC was formed as a holding company domiciled in the UK, which acquired both ReNew and the SPAC via a reverse triangular merger.
⚖️ Regulatory Framework
Since the SPAC was U.S.-based, the transaction had to comply with:
∙ U.S. Securities Laws: Including SEC disclosure, shareholder vote, and listing compliance.
∙ Indian Regulations:
∙ FEMA (ODI rules): Approval and structuring of Indian investment in foreign SPACs.
∙ Income Tax Act: Capital gains for Indian shareholders.
∙ RBI & MCA: Ensuring no violation of round-tripping norms.
ReNew’s global investor profile and prior experience with FDI helped navigate these hurdles.
�� Benefits of SPAC Route for ReNew
Advantage Explanation
SPAC merger allowed ReNew to become public faster than a traditional
Speed to Market Valuation
IPO.
Control Negotiated valuation (~$8B) in advance, unlike volatile IPO pricing.
Strategic
Investors
Global Branding �� Challenges Faced
Attracted large PIPE investors such as BlackRock, Sylebra, and TT International.
NASDAQ listing gave ReNew global investor visibility as a green energy leader.
∙ Cross-Border Structuring: Required sophisticated legal and tax structuring due to multiple jurisdictions.
∙ Market Timing Risk: Volatility in U.S. markets for clean tech stocks during closing. ∙ Regulatory Complexity in India: Needed clarity under ODI, FEMA, and tax rules.
�� Impact and Aftermath
∙ India’s First Unicorn via SPAC: ReNew became the first Indian unicorn to go public via SPAC.
∙ Paved Way for Others: Yatra, Mobikwik, and even Ola Electric explored or announced SPAC plans post this deal.
∙ Proof of Concept: Validated the SPAC model for Indian companies with global ambitions and capital needs.
Conclusion
The ReNew-RMG SPAC deal showcased how Indian companies could access U.S. capital markets via innovative structures, bypassing domestic listing limitations. It also highlighted the importance of having a robust corporate governance setup, cross-border legal expertise, and investor readiness.
This deal stands as a template for future Indian entrants into the SPAC ecosystem, especially in capital-intensive and ESG-driven sectors like clean energy and infrastructure.
