ReNew Power’s $1 billion SPAC deal may blaze a trail to Wall Street for Indian unicorns

Investors are watching the deal closely because it could pave the way for a slew of similar transactions enabling Indian unicorns to raise billions from global capital markets via joining with SPACs, also known as “blank check” funds, listed on Wall Street.

The ReNew Power deal will raise far more than the two previous SPAC listings involving Indian companies: online travel agency Yatra’s $218 million haul in 2016, and satellite television provider Videocon’s $370 million raise in 2015. The combined entity, which will be known as ReNew Energy Global, is expected to be valued at $8 billion.

Analysts say U.S.-listed SPACs are increasingly looking toward Asia for deals as the number of viable acquisition candidates in North America dwindles. India, with more than 100 unicorns—startups valued at $1 billion or more—is a target-rich environment.

Marc Iyeki, consultant at New York–based Global Markets Advisory Group, says the ReNew Power merger shows Indian companies and their foreign backers that going public via U.S.-listed SPAC is viable. Prashant Gupta, partner and national practice head of capital markets at law firm Shardul Amarchand Mangaldas & Co., says India looks all the more attractive given that regulators in the U.S. and China are raising obstacles to Chinese firms listing on Wall Street.

Forging a new path

India doesn’t permit its companies to sell shares on overseas exchanges via traditional public offerings. For ReNew Power, the only alternative to its SPAC deal was a domestic IPO. ReNew executives said the former option would help them to achieve a higher valuation than a domestic listing because global investors have a keener awareness than their domestic counterparts of the importance of the renewable energy sector.

“Our decision [was] based on long-term factors, not short-term,” ReNew Power chairman Sumant Sinha tells Fortune. The company plans to use proceeds of the deal to expand wind, solar, and hydropower generation capacity.

With ReNew’s successful listing, India’s leading startups now “have more options in how and where they go public, whether via traditional IPO in India or SPAC listing in the U.S.,” Iyeki says.

In the first five months of 2021, about 330 SPAC vehicles have raised nearly $104 billion, according to Dealogic data. Another 290 or so represent over $67 billion and remain in the IPO pipeline. Iyeki says that’s a huge opportunity for Indian firms looking to go public overseas. Gupta predicts “five to seven Indian companies [will] go for a SPAC listing next year.”

India IPO boom

India is in the midst of an IPO boom. The Indian stock market has hosted over 40 IPOs in 2021 year to date; in August alone, 23 companies filed IPO applications with the Securities and Exchange Board of India (SEBI).

Indian companies are expected to raise a record amount via traditional IPOs this year, exceeding $11 billion in 2018 and feeding off positive investor sentiment. Indian startups raised $12 billion from venture capital and private equity firms in the first six months of this year, beating the funding for the whole of last year by $1 billion, according to data compiled by Venture Intelligence. India’s benchmark BSE Sensex has hit a series of record highs since mid-July, as investors look toward an economic rebound as the pandemic subsides in the country.

Listing at home remains attractive for many Indian companies. Domestic listings offer a relatively easier listing process compared with going public overseas; in India, the disclosure requirements are less strict than in the U.S. As Indian firms aren’t allowed to list overseas, firms interested in the SPAC route must first establish an overseas company, as ReNew Power did in London.

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