India’s ‘buoyant’ startup culture shut out of global SPAC hunt

, Economic times

Companies in India remain almost completely locked out of being acquired by special-purpose acquisition companies nearly a year after India’s finance minister promised to relax foreign investment rules and let SPACs buy and list its companies.

The number of SPAC deals that have taken Indian companies public on the U.S. stock exchanges remains stuck at exactly three—even as an estimated $120 billion in capital seeks deals in Asia.

Rules aimed at protecting investors from unvetted shell companies have essentially barred SPAC investments, and any workaround involves convoluted cross-border structures that India has tried to thwart with punishing tax consequences that wipe out any benefits to going public.

India has proposed allowing SPACs to list directly onto an exchange located in a special financial zone called GIFT City, and relaxing rules for a special class of institutional investors that have deep pockets and an appetite for risk. But entrepreneurs, fund managers, and tax professionals say both proposals fall far short of reversing the restrictive rules.

Frustration from Indian companies and investors comes as the Securities and Exchange Commission increases its scrutiny of U.S. SPACs, including their accounting practices, and companies run low on targets in North America. Now Asia is starting to draw more attention. Goldman Sachs, for example, has set up a dedicated SPAC banking operation in Hong Kong.

SPACs are running out of promising target investments in North America—home to 86% of the targets that were announced in 2020, while deals in the Asia-Pacific region made up just 5%, according to the Bloomberg data.

India did release a domestic SPAC proposal last month to “keep pace with the evolving market environment”—but it falls short of enabling many of those companies from becoming targets for global investors because it only allows domestic SPACs to acquire them, and limits future listings to a single financial zone called GIFT City.

One way to usurp those regulatory and tax consequences is to set up a blocker corporation to act as a holding company of the Indian entity. And rerouting headquarters outside of India is becoming part of the playbook for Indian companies seeking alternative methods of financing.

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