India’s capital markets regulator is examining the possibility of allowing special purpose acquisition companies (SPACs) in the country.
The Primary Market Advisory Committee is deliberating whether a framework for SPACs should be introduced in India and if so, with what safeguards, Ajay Tyagi, chairman of the Securities and Exchange Board of India, said at the 18th Annual Capital Market Conference organised by the Federation of Indian Chambers of Commerce and Industry.
SPACs are shell companies listed on stock exchanges that acquire private companies to make them public by skirting the traditional process of making an initial public offering.
In his speech, the SEBI chairman covered issues such as free float trends in companies, the quality of disclosures and the apparent disconnect between the stock markets and the economy.
Tyagi expressed unhappiness with disclosures by companies. He said there are two sets of disclosures that listed companies are required to make – periodic disclosures in prescribed formats and disclosures of events deemed as material.
“On both these aspects, I must say, disclosures by many companies are lacking,” Tyagi said. “On periodic disclosures such as annual reports, while all the fields are being filled in, in many cases, they appear more like a checkbox exercise. This is not acceptable.”
In the case of disclosing material events, Tyagi said companies often do not go beyond what’s specified in SEBI’s regulations. Many times, the stock exchanges seek clarifications from companies after articles appear in the media.
“This is surely not the right way to go,” Tyagi said, urging companies, their management and boards to revisit their policies and review whether disclosures of material events are being met not just in letter but in spirit as well.
Interacting with reporters, Tyagi said the regulator is discussing conditions of free float in companies with the stock exchanges. Companies are required to have a minimum public shareholding of 25 percent. The authorities are examining whether the public shareholding should be equated with free float. A higher level of public float helps in price discovery and enhances corporate governance, Tyagi said.
Asked about the divergent trends between the stock markets and the economy in the wake of the pandemic, the SEBI chairman said, “Not totally irrational exuberance in the market as it’s certainly forward looking.”Liquidity and low interest rates are driving the stock market, he said. The stock markets are attracting more investors, as indicated by the number of dematerialised accounts, which have grown 2.5 to 3 times since 2019, he said.