On June 15, we had written about a proposed preferential issue by PNB Housing Finance, in respect of which a proxy advisor issued a report asking public shareholders to vote against the proposed investment. As an alternative to a preferential issue, the report suggested that the company should have considered a “rights issue”. In our previous article, we considered a “rights issue” and a “preferential issue” from the perspective of certainty in funding, disclosure obligations, approvals and timelines and pricing.
The debate has since focused on whether the proposed preferential issue required a report of a registered valuer and whether such a report was in fact procured. In this article, we consider the legal framework around which the debate turns, comprising the SEBI ICDR Regulations, the Companies Act and PNB Housing Finance’s articles of association.
Recently PNB Housing Finance announced a “preferential issue” of shares, through which the Carlyle Group will acquire a controlling interest in the company. A proxy advisor has issued a report asking public shareholders to vote against the proposed investment. The report argues that the price at which Carlyle will be investing in the company belies the company’s true value. As an alternative to a preferential issue, the report suggests that the company should have considered a “rights issue” in which all shareholders will be entitled to participate. In this context, it is important to consider whether a preferential issue and a rights issue are, in fact, comparable options for fundraising and accordingly, if there is merit in the allegation of poor corporate governance that has been levelled against the target company’s board of directors.
In a significant move more than a year ago, the Indian Government directed that all investments from countries that share land borders with India will require prior regulatory approval. This change covered both direct and indirect investments and came in the wake of scrutiny by the Indian securities regulator of Chinese ownership of portfolio investors and the introduction of stricter FDI regimes worldwide. It may be time for the Government to consider whether the rules introduced in 2020 are justified any more in their current form. If not, certain modifications could be considere
Under the Competition Act, 2002, transactions that qualify as a ‘combination’, are required to be notified to, and approved by, the Competition Commission of India (the “CCI”) prior to completion, unless any exemptions apply. If addition, all transactions that are ‘inter-connected’ with such ‘combination’, are also required to be notified to the CCI in a single application along with the combination. This applies irrespective of the inter-connected transaction being exempt from notification requirement on a standalone basis, and the inter-connected transaction may not be completed prior to receipt of the CCI’s approval. However, the identification and treatment of such ‘inter-connected’ transactions is fraught with uncertainty. This note aims to provide an overview of the existing Indian merger control framework and identify certain issues often faced by stakeholders in this regard.
A key feature of the Prevention of Money Laundering Act, 2002 (the “Act”) is the power of the investigating agency under the Act, i.e., the Directorate of Enforcement (the “ED”), to provisionally attach any property believed to be involved in money laundering for an initial period up to 180 days from the date of such attachment. This provision ensures that proceeds that are obtained directly or indirectly from the offences noted under the Act (“scheduled offences”) are not dealt with in any manner so as to frustrate proceedings relating to the confiscation of such proceeds under the Act. Ex facie, this provision appears to be in direct conflict with the rights of bona fide third-parties such as banks, mortgagees, transferee, and lessee etc. who may otherwise have a lawful interest in a property alleged to be involved in money laundering and had no knowledge of such involvement at the time of acquisition of interest in such property. In light of this apparent conflict, does the Act adequately safeguard the rights of such third-parties who have a lawful interest in a property provisionally attached by the ED?
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.
Although the Government fell short of its disinvestment targets for the financial year ending March 31, 2021, the finance minister, in her budget speech, has promised the completion of several key disinvestment transactions in the next financial year. Completing disinvestment proposals has historically proven to be challenging on account of different factors. These factors include regulatory hurdles, conflicting expectations from different stakeholders, litigation risks and uncertainty in post-closing arrangements. Learning from such experiences and anticipating the challenges that lie ahead will be key to executing the Government’s proposals in an effective and timely manner.
The recent interpretation of “control” by the High Court of Delhi in a litigation between Future Retail and Amazon has once again focused attention on the perennial question of what constitutes control. As described in more detail in the note, this question cannot be considered in abstract; it must be considered in the context of a specific legislation or policy and the objective it seeks to achieve. The relevant provisions of the FDI policy, which provide the context in this case, may not have been correctly appreciated.
In light of the growing trend of private equity (“PE”) firms acquiring minority stakes in multiple firms in the same sector, the Competition Commission of India (the “CCI”) has recently announced a market study to analyse the incentives and rights associated with such minority investments, and their impact on competition in India. There is a lack of clarity around situations in which a PE investor is required to notify a proposed minority acquisition to the CCI, and it is hoped that the CCI’s proposed market study will inform improvements to this framework, in order to bolster certainty and investor confidence. In this context, this note provides an overview of the existing Indian merger control framework vis-à-vis ‘minority acquisitions’, including the uncertainty currently surrounding the notifiability of such transactions, and suggests a possible way forward.
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.