What’s a Blank Check Company? or SPAC ( Special Purpose Acquisition Company)?

About Blank-cheque Company:

  • A SPAC, or a blank-cheque company, is an entity specifically set up with the objective of acquiring a firm in a particular sector.
  • The aim of this SPAC is to raise money in an Initial Public Offering (IPO), and at this point in time, it does not have any operations or revenues.
  • Once the money is raised from the public, it 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.


  • These are attractive to investors, despite them essentially being shell companies, as the blank-cheque companies are people sponsoring.
  • It is a fresh way of thinking of how to structure and exit versus an expensive IPO. The money is already raised by somebody who specialises in that area, and is now picking those assets and building on them.

How a BC/Holding Company can go for IPO listing without even doing any business?

SPACs are shell companies which are already listed in the public market with no business operations, sponsored by experienced investors/ management, formed with the purpose of merging or acquiring other operational businesses within a specified timeframe.

SPACs can be considered as a ‘reverse-IPO’ route, because while traditionally a company seeking to go public would undergo a lengthy listing process after justifying its business proposition to the public market regulator, here, the operating company gets acquired by a company which is already a listed company.

For growing companies based in emerging jurisdictions, and with the right investment team backing them, SPACs are an attractive option to get listed abroad and get access to public market funds, without the extended time period, protracted process, price uncertainty and regulatory baggage that listing in one’s native jurisdiction may entail, and the additional uncertainty and hassle of going through the conventional direct listing route.

How can it raise funds in open market?

The process is really no different than a traditional IPO, There’s a team that will incorporate one-on-one meetings between institutional investors like hedge funds and private equity funds and the SPAC’s management team  to solicit interest in the offering.

At the end of it, institutional investors, which also right now include a lot of family offices, buy into the offering, along with a smaller percentage of retail investors where pretty much anyone who can persuade shareholders to buy its shares.

What the the process in India to Register a Similar Entity, is it legal in Indian Law?

SPAC can work  by 100% share acquisition of the Indian target companies by the SPAC, where the consideration may be a combination of cash plus stock swap. The significant advantage of this route is that it does away with the lengthy NCLT process.

However, an analysis of the relevant RBI regulations in relation to pricing guidelines, LRS restrictions for portfolio investors (RBI approval will be required if the remittance for foreign shares exceeds the USD 250,000 limit), requirement of an RBI approval for consummating a swap of shares by a resident, restrictions under the foreign exchange regulations on deferment of payment of consideration, and requirements under the ODI regulations for the Indian promoter group, is important while structuring an exit for the Indian promoter group and other India-resident shareholders.

In light of such regulatory restrictions, including that of obtaining RBI approval for swap of shares by resident shareholders, parties may consider certain alternative structures which satisfy both the commercial requirement of providing an upside to the India-resident shareholders and avoiding the hassle of approaching the regulators for approval for the de-SPACing event.

However, if we look at the current regulatory framework of India is not supportive of the SPAC structure. For instance, the Companies Act 2013 authorizes the Registrar of Companies to strike-off the name of companies that do not commence operation within one year of incorporation. SPACs typically take 2 years to identify a target and perform due-diligence. If SPACs are to be made functional in India, enabling provisions will have to be inserted in the Companies Act.

Further, SPACs do not find acceptance even under the Securities and Exchange Board of India Act. The eligibility criteria for public listing, requires a company to have net tangible assets of at least ₹3 crore in the preceding three years, minimum average consolidated pre-tax operating profits of ₹15 crore during any three of last five years and net worth of at least ₹1 crore in each of the last three years.

The absence of operational profits, net tangible assets would prevent SPACs from making an IPO in India. US has witnessed an upswing in the popularity of SPACs. The US Securities and Exchange Commission oversees all transactions pertaining to SPAC.

How much would it cost Company X to setup a similar entity in India.?

Recently, in a consultation paper recently released by SEBI on Proposed International Financial Services Centres Authority (Issuance and Listing of Securities) Regulations, 2021, a framework for listing of shares by a SPAC in the International Financial Service Centre (currently present in Gujarat) has been contemplated.

This is subject to fulfillment of certain conditions such as minimum offer size being USD 50 million, acquisition timeline for SPACs being 3 years extendable by 1 year, etc. It remains to be seen whether the framework that is finally approved will be attractive enough for SPACs to list in the IFSC in India rather than abroad.

However till such procedure Company X can establish a Liaison Office as a special organisation setup as a representative of Foreign Parent organisation established with the prior permission of the Reserve Bank of India (RBI). Liaison Office is allowed to undertake only liaison work in India and all transactions whether related to Sale/ Purchase/ Provision of any services and even receipts and payment of money is undertaken directly by the parent company. Liaison office is not authorized to undertake any type of commercial activity accept liaison.

A Liaison office is setup only for the purpose of representation and cannot undertake any commercial activity in India. Further, all the expenses for a Liaison Office is borne by the parent organisation.

A Liaison office is not liable to pay any Indian Taxes as it is not undertaking any commercial activity, but now is required to file annual return with Income Tax Department. Further, it is also required to file annual return with the Registrar of Companies (ROC) as well as Reserve Bank of India (RBI).

How much time, resource, support you need to do it.?

Generally an Market survey is required to be done before starting selection of target companies

However in India SPAC requires more public awareness as this may lead  to relaxation of government norms for listing and establishment of SPAC in India. Moreover this is future decision influencing factors but If SPAC in current scenario would be successful without violation of any norms established by government if the market research and deal making activity is done in efficient and accurate manner.

Thus time of Functional establishment  would be  around 16 months for any deal making based on following support activity is established :

  • An established PESTEL Analysis  team
  • Experienced Investment bankers and credit analyst
  • Legal Attorney for legal framework finalization
  • Chartered Accountant support for attestation function
  • This team can help in faster functioning and getting best deals at more profitable ventures.

However India being not an established market have scattered resources compilation of all this resources at once is a mammoth job.

When we rationally weigh the pros and cons, we find that while SPACs indeed provide a fast-track route to indirect listings abroad, they come with their fair share of risks such as high taxation, non-regulated scope, etc. In the case of direct listings in India through IPO, while the safety of favorable regulatory mechanisms exits but so do the risks of valuation. It would be too early to comment on the fate of SPACs in India, however, the companies need to be vigilant while treading this high-risk path in absence of a robust regulatory framework. Meanwhile, the government shall focus more on introducing a streamlined regulatory framework for SPACs in India as per the market indicators and expert opinions, apparently they are here to stay.

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June 2021