In 2020, over $80 billion was raised in the US from more than 200 SPACs (special purpose acquisition companies), with SPAC IPOs comprising over 50% of US IPOs. While Indian laws have been amended to facilitate cross-border mergers, regulatory and taxation challenges restrict the ability of the parties to efficiently merge an Indian company with the SPAC. The parties’ objectives could therefore be met through externalisation and structuring within the scope of Indian regulations. Apart from the regulatory and taxation challenges involved in a US listing through the SPAC route, Indian companies should also be prepared for compliance with a stringent governance, internal controls, accounting and disclosure regime. Several Indian technology companies have plans to go public. It remains to be seen how many will opt for the SPAC route, which has increasingly emerged as an attractive option for companies around the world particularly in the technology and ESG sectors. In the meanwhile, the SPAC alternative could also well be explored by Indian regulators as a route for listing in India with appropriate safeguards.
In November 2019, Dewan Housing became the first non-banking financial company to be referred to the insolvency resolution process under Indian bankruptcy law. The process has seen four rounds of bids, of which the last two were driven by a bid submitted after the deadline. While one bidder withdrew from the process on grounds of unfair treatment, other bidders have protested against the late-stage non-compliant bid, which has further prolonged the insolvency resolution process and created a threat of litigation. While late-stage bids may be acceptable in exceptional circumstances, this cannot be allowed to become a regular feature of the insolvency resolution process. As described in more detail in this note, maximization of value of assets is not the sole objective of an insolvency resolution regime; such regime must also provide transparency and certainty, symmetry of information and a time-bound process to better preserve economic value.
Since January 2020, there have been more than 10 public issues of non-convertible debentures (NCDs) and over 1,600 private placements of corporate bonds in India. M&A transactions in India have also increasingly witnessed NCDs as a preferred instrument for funding, which may be attributable to the benefits that NCDs could provide to investors vis-à-vis equity instruments. Separate regulatory frameworks apply to acquisition of NCDs by registered foreign portfolio investors on the one hand and other foreign investors on the other hand. Further, Indian regulators have sought to encourage offshore debt funding, for example, by introducing the voluntary retention route for foreign portfolio investment in debt instruments. Accordingly, this note provides an overview of investment routes available to foreign investors in relation to NCDs.
Since April 2020, prior regulatory approval has been required for all investments from countries that share land borders with India, including where the beneficial owner of an investing entity is situated in or is a citizen of any such country. The threshold for beneficial ownership has remained unclear and can arguably be triggered even if a single share of an investing entity is beneficially held by an investor from one of the restricted bordering countries (which include China). This has created uncertainty not only regarding inflow of new investments in the start-up sector but also beneficial ownership in a private equity fund. While other Indian laws prescribe certain tests for beneficial ownership, these are not consistent. This note examines the concept of “beneficial ownership” under certain Indian laws as well as the definition in the United Kingdom and the United States, and suggests next steps in the context of Indian foreign investment regulations.
This note, first published on the National Law School Business Law Review blog, discusses recent amendments to the [Indian] Insolvency and Bankruptcy Code, 2016 in light of the COVID-19 pandemic, which inter-alia temporarily prevent creditors from initiating insolvency proceedings against corporate debtors. While the proposed changes are a step in the right direction, the Government should also consider the impact of the pandemic on pending proceedings as well as alternative mechanisms to restructure debt and resolve defaults in a cost-effective manner to preserve value.
On June 5, 2020, the Insolvency and Bankruptcy Code, 2016 was amended to inter-alia prohibit creditors and corporate debtors from initiating corporate insolvency resolution proceedings in respect of defaults arising during the six (6) month period from and including March 25, 2020 (the date of commencement of the national lockdown) – this period may be extended up to one (1) year.
Price adjustments in M&A transaction documentation enable parties to align the consideration originally negotiated at signing to the facts and circumstances existing at closing. Such adjustments become particularly important when there is a protracted time gap between signing and closing, usually due to statutory and regulatory approvals, and in case of listed entities, volatility in the financial markets. Certain transactions are implemented through tribunal-approved schemes of merger, de-merger, etc. (“Schemes”). While Schemes offer certain advantages such as an exemption from takeover regulations in case of listed entities, price adjustments in such transactions are subject to greater scrutiny and constraints, given requirements for tribunal approval and in the case of listed entities, pricing requirements and review by stock exchanges and the securities regulator. This note sets out certain price adjustment mechanisms that could be considered by parties to Schemes involving listed entities.
In the wake of the COVID-19 pandemic, several corporate borrowers will find themselves in challenging financial circumstances that may require negotiations with their lenders or even full-fledged restructuring. The Reserve Bank of India (RBI) and Indian courts have granted temporary relief measures to offset the strain on borrowers. If required by borrowers or lenders, India offers the following out-of-court and in-court restructuring and enforcement mechanisms: (i) the RBI Framework for Resolution of Stressed Assets (introduced in June 2019); (ii) the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act); and (iii) the Insolvency and Bankruptcy Code, 2016 (IBC). This note sets out such mechanisms and available relief measures. Given that the situation is constantly evolving, borrowers and lenders should remain vigilant about tracking legal and regulatory developments.
In a significant move, the Indian Government has, in a bid to curb opportunistic takeovers of Indian companies as a result of COVID-19, directed that all investments from countries that share land borders with India will require prior regulatory approval. This change covers both direct and indirect investments and comes in the wake of recent acquisitions and exploration of investment opportunities by Chinese investors in India, scrutiny by the Indian securities regulator of Chinese ownership of portfolio investors and the introduction of stricter FDI regimes worldwide.
In mid-March 2020, German media reported that the United States President had offered to take over CureVac, a German vaccine firm which was working on a vaccine for COVID-19, to secure the vaccine only for the United States – these reports were later denied. Indian media has recently reported that the Chinese central bank now holds more than 1% shareholding in HDFC, India’s largest housing finance company. The COVID-19 pandemic has not only brought healthcare and critical infrastructure into focus from an FDI perspective, but has also weakened companies in other sectors and made them easy targets for creditors and opportunistic buyers.
This note examines the measures taken by certain countries, particularly in Europe, to protect their businesses from being taken over by foreign investors as well as India’s current position on FDI. While India has so far focused on liberalizing the FDI regime, if COVID-19 propels the Indian Government to follow suit, investors can expect introduction of additional restrictions on FDI as well as extended timelines for approval.