SPACs making their way to India

37188 Investors following HDFC. Share this News with them.

0

Like this story, share it with millions of investors on M3

SPACs making their way to India

Special Purpose Acquisition Companies, or SPACs, are the new rage in New York and London. They have made their way to India, but there are some who are turning cautious, reports CNBC-TV18.

Post your opinion here

 

0

Tweet

Share on Tumblr

RELATED NEWS MFs gear up to cash in on ETFs MF or Ulips - which is a better bet? ALSO READ See latest News about HDFC See previous management interviews See what other Experts & Brokerages are saying about HDFC HDFC BSE | NSE 25/05/12 Are Mutual Funds betting on HDFC?

Special Purpose Acquisition Companies , or SPACs , are the new rage in New York and London. They have made their way to India, but there are some who are turning cautious, reports CNBC-TV18.

The Indian shores are being chased by a new breed of investors. These are companies called SPACs and are formed by a group of hedge funds or investors with a single objective of buying out companies. They have already struck in India. One such company acquired Mars restaurants for USD 110 million and another has bought a Delhi-based broking firm.

But HDFC Chairman Deepak Parekh is not impressed by these investing companies. 

"I can go up to London Alternative Investment Market , or AIMs market and say that I can raise money to acquire companies without having any plan or strategy. So, it is becoming easier because of the liquidity and large returns. Some SPACs are giving 40% return, but for how long will it last? It is like a blank cheque," said Deepak Parekh.

Nevertheless, these blank cheque companies have been quite successful in raising over USD 3-4 billion in the United States and Britain, for pure acquisitions. In fact, financial advisors say these funds are serious investors and operate under strict rules.

The sponsor of the fund has to bring in 5% of the money that is raised on the exchange. Once the company is listed and the corpus is created, it is put into an ESCROW account. The promoter then has to complete at least one management buyout in the first year. If the promoter remains unsuccesful for one year, the money is returned to various investors and the promoter loses the initial 5%.

This condition ensures that only savvy investors float a SPAC.

"You have to work within stringent conditions," said Farid Gulmohamed , Senior Advisor, Corporate Finance, KPMG .

 And even a homegrown SPACS is round the corner. Several Indian hedge funds are looking to create such companies. KPMG says that one deal should be done by September in the pharma industry. It will be interesting to see how Indian regulators respond to this new entity.