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The role of IFSC in the Indian SPAC Dream

The IFSC (International Financial Services Centre) code, in India, was introduced by the government in April 2015, in Gujarat at the GIFT Multi Services Special Economic Zone (SEZ), its main purpose is to make India a hub for international financial services. The same was enacted in December 2019 and a unified regulator was set up, International Financial Services Centers Authority(IFSCA), which began with its enactment in October 2020. This has been set up to regulate the financial institutions in India. This authority has developed a regulatory regime regarding the financial sector, fintech, global in-house centres, and special purpose acquisition companies (SPACs).

What are SPACs?

SPACs, also known as “blank check companies”, are financial companies that have no commercial operations, and raise capital strictly through an IPO(Initial Public Offering). They are listed on a stock exchange (like NASDAQ), which is set up by investment funds mainly for acquiring operating companies within a specified time, with the acquisition resulting in the listing of those companies. 

The interplay of Domestic Laws regarding IFSCs

The interplay of the current domestic laws of India and their effects on units in the IFSC is critical in providing the unique ‘off-shore’ status to IFSCs, key features of which, as currently in place, are stated below:

  1. All provisions related to securities law are applicable to an IFSC’s financial institution, except as otherwise provided in SEBI (International Financial Services Centre) Guidelines, 2015.
  2. The Ministry of Corporate Affairs has provided certain procedural relaxations to IFSC’s licensed companies.
  3. In relation to capital markets intermediaries, the Securities and Exchange Board of India (SEBI) guidelines permit SEBI-registered intermediaries to provide financial services relating to the securities market in IFSC without forming a separate entity in IFSC, where services are offered exclusively to institutional investors, without prior SEBI approval.
Stock Exchanges in IFSC

SEBI has permitted stock exchange in India and recognized stock exchanges in a foreign jurisdiction for setting up a subsidiary that provides the services of stock exchange in IFSC. These stocks have permission to offer to trade in equity shares of incorporated companies outside India and all categories of exchange-traded products that are available for trading in stock exchanges in the Financial Action Task Force complaint jurisdiction. According to the SEBI IFSC guidelines, a non-resident Indian to the extent eligible under FEMA to invest funds offshore can avail of services from the intermediaries in IFSC.

Development of a regulatory regime and unique ecosystem in IFSCs for SPACS 

With the enactment of IFSC Listing Regulations, a sorted framework has now been put in place for the issuance and listing of securities by (a) a company incorporated in any foreign jurisdiction, (b) a company incorporated in India, and (c) company incorporated in IFSC. The IFSC listing regulations notified on July 16th, 2021, permit the listing of SPACs by Indian or international sponsors/ investors. Some advantages of IFSC are: 

(a) IFSCs provide Indian companies easy access to offshore markets through liquid stocks.

(b) IFSC provides for harnessing the expertise of offshore sophisticated investors and offshore investment managers.

(c) Given that the companies set up in IFSCs would be dealing in foreign currency, there will not be any hedging risk for offshore entities (whether as offshore SPAC with targets in IFSC or IFSC SPAC with offshore targets) engaging with IFSC entities.

Accordingly, with the regulations in place for modern as well as traditional structures, the focus on ease of doing business at the IFSC, the proactive and business-friendly approach of the IFSCA and the recent introduction of the IFSC Listing Regulations, the stage is all set to realize the Indian SPAC dream at the IFSC and provide opportunities to many Indian and foreign entities to explore listing at the Indian IFSC through the SPAC route.  

By Anoushka Amar