For easiness’s sake, M&A deals in India can be divided into 2 categories:
- those involving the purchase of Indian companies’ assets;
- those involving the purchase of Indian companies’ stocks.
When buying assets of an Indian company, parties have 2 options: they can either transfer the entire business or only some of its assets. Please note that direct ownership of certain categories of assets by non-residents is disallowed.
Directly acquiring am Indian company, and more specifically, purchasing more than twenty five percent of its stocks, requires getting permission from regulatory authorities. Indirectly acquiring more than eighty percent of an enterprise’s market capitalization, sales turnover, or net asset value is deemed direct acquisition. When it comes to schemes approved by courts & involving companies which are publicly listed, those participating in an M&A deal must ensure compliance with requirements pertaining to stakeholders’ voting rights & accessibility of information.
India: Concluding International M&A Deals
International transactions that involve acquisition of stocks are regulated by securities & currency control legislation. They can be structured as:
- FDI in securities & equities;
- FPI involving investments in ten percent of stocks or less.
FDI requires compliance with fair value requirements, whereby foreign investors seeking to purchase a company in India must pay a fair price. If purchasers are based outside India, an M&A transaction is only allowed in certain foreign jurisdictions. Securities & currency control legislation also influences international M&A deals in India.
Investing in some industries requires compliance with specific regulatory regimes (e.g. there’s a specific financial supervision regime administered by India’s National Bank). In a similar fashion, investing in the insurance industry requires adherence to certain rules enforced by the Development & Regulatory Agency. While unrestricted FDI is allowed in most sectors, in some it:
- is completely banned (e.g. in the nuclear power, lotteries & gambling sectors);
- is allowed only if it doesn’t exceed a specific threshold (e.g. forty nine percent in insurance);
- is allowed if it exceeds a specific threshold: however prior government approval is required for that (e.g. in the telecommunications sector, where FDI exceeds forty nine percent regulatory approval is required).
There’s also additional terms & operating obligations in certain sectors (e,g, branded retail).
Looking to conclude an M&A deal in India? Need advice on M&A regulation in India? Why not contact IQ Decision UK?