ICICI Securities Delisting: What really are the issues?

ICICI Securities Delisting: What really are the issues?

Key Takeaways

  • ICICI Bank is delisting ICICI Securities through the first court driven delisting in India
  • Reverse book building process avoided – taking a specific exemption under Regulation 37 intended for companies in ‘same line of business’ – why did SEBI grant the exemption?
  • Public shareholders contend valuations as unfair – jury out on fairness of valuations; does a 9 month gap merit a true-up even though not required per law?
  • Why did ICICI Bank and I-Sec reach out to public shareholders to vote in the shareholders’ meeting? Should they have?

What happened?

ICICI Securities (I-Sec), the broking arm and subsidiary of ICICI Bank, is in the midst of delisting its shares to become a wholly owned subsidiary of ICICI Bank. Some public institutional and retail minority shareholders are resisting the delisting as they contend that: (a) I-Sec shares have been valued unfairly; (b) the arbitrary failure to follow the Reverse Book-Building process (RBB), a fundamental price discovery mechanism in delisting; and (c) there is a lack of independence in the voting processes.

Why was RBB not followed – basis for alleging lack of price discovery?

Under Indian delisting norms1, the conventional delisting procedure involves the RBB, where public shareholders tender their shares at or above a calculated floor price. The exit price is based on public shareholder bids.

I-Sec, in its delisting, sought exemption from the RBB by going through Regulation 37 of the Delisting Regulations. Regulation 37 is a special route for delisting in cases of delisting listed subsidiaries which permitted when (i) it is driven by a court approved scheme and (ii) the listed holding and subsidiary companies are in the ‘same line of business.’

What does ‘same line of business’ of mean?

Existing SEBI guidelines prescribe criteria to determine ‘same line of business’ including: (i) the principal economic activities of both companies falling under the same 3-digit code in the National Industrial Classification Code 2008 (“Business Code”); and (b) at least 50% of both companies’ revenue and net tangible assets being attributable to the same line of business.2 However, I-Sec and ICICI Bank filings suggest that these criteria cannot be met. Hence, I-Sec sought and was granted an exemption from SEBI to go ahead with the Regulation 37 delisting.

How did SEBI grant this exemption?

Never mind the differing Business Codes, I-Sec and ICICI Bank contended that since both entities are under the same broad head of ‘Financial and Insurance activities’ (though not within the same 3-digit code in the Business Code), SEBI should allow them to delist under Regulation 37.3 SEBI granted the exemption through its letter to the bank on 20 June 2023. Whilst we do not have access to the SEBI’s order granting the exemption, a natural question that shareholders have is whether SEBI went beyond its remit disregarding the same Business Code requirements?

Valuation floor price is duly met – so what is the valuation concern raised by shareholders?

I-Sec’s delisting process was initiated in June 2023 when the share price was valued at INR 640.8 based on valuation reports procured from registered valuers at that time. However, as of the date of shareholders’ vote as of March 27, 2024, I-Sec’s share price stood at INR ~741 on the stock exchanges.

While the I-Sec board approved the delisting at the end of June 2023, the conclusion of the delisting process is expected to be in Q2FY24 – almost a year later due to the regulatory requirements for approvals from stock exchanges, regulators, tax authorities, courts and shareholders. A tabular depiction of the events as on date:

Date Event
29 June 2023 I-Sec board approves delisting (date when the valuation of INR 640 was taken)
15 July 2023 I-Sec applies to BSE and NSE for approval to file the scheme of arrangement
28, 29 November 2023 NSE and BSE issue NOC for I-Sec to file the scheme
21 December 2023 I-Sec files the scheme with NCLT Mumbai
14 February 2024 NCLT approves calling of shareholder meetings
27 March 2024 Equity shareholders approve the delisting (share price reaches ~ INR 740)
Considering legal and regulatory requirements for the delisting process, shareholders have raised concerns regarding the share swap ratio proposed: 67 shares of ICICI Bank for every 100 shares of I-Sec held by existing public shareholders, which shareholders argue does not take into account I-Sec’s most recent share price.

Valuation concerns – what’s the shareholders’ concern?

In the usual delisting route where public shareholders are required to be given an exit, the delisting must be approved by public shareholders within 45 days of the board’s approval of the delisting. It is unfortunate that in a Regulation 37 delisting, the valuation is fixed at the time of the board’s approval but involves a rather extensive time gap for shareholders to be given an opportunity to approve the delisting (due to various approvals required from courts and regulators) – which may cause considerable variation in the value of the shares. This was the case in I-Sec’s delisting as well. As discussed above, I-Sec’s share price had shot up to ~INR 740 on 27 March 2024 when the shareholders’ meeting was held.

Such large time gaps and variations in share valuations in comparison to the general delisting routes, naturally begs the question as to whether the Delisting Regulations or the company law courts should permit for a ‘true-up’ to reach a valuation closer to the value of the shares as on the date of the equity shareholders’ meetings.

In I-Sec’s case, some minority shareholders have raised concerns regarding the valuation methodology employed to procure the valuation report and the suppressed share price for I-Sec due to the delisting process. So, the question is – why did the shareholders vote in favour? They could have voted against the delisting as well.  

Why did the shareholders not vote against?

I-Sec’s shareholders’ voting results show that the public shareholders have approved the delisting by a 2x vote in favour as required by the Delisting Regulations. Interestingly, this vote was driven largely by institutional public shareholders, including mutual funds, etc. Retail shareholders have voted heavily against this delisting by a large margin.
Public Shareholder Type No. of shares held % of votes polled on shares % votes in favour % votes against
Institutions 56299513 ~93 ~83.8 ~16.2
Non-institutions (retail shareholders) 25400880 ~62 ~32.2 ~67.8

Fig. Public shareholder voting results at the equity shareholders meeting of I-Sec held on 27 March 2024

Notably leading proxy advisory firms advised voting in favour arguing that the valuation was fair as of June 2023.

ICICI Bank influencing I-Sec shareholders?

There have been multiple reports and claims by I-Sec public shareholders that ICICI Bank through its employees, agents, and third parties have been contacting I-Sec public shareholders to vote in favour of the delisting. Shareholders have raised concerns about privacy breaches – why were these calls coming from ICICI Bank (I-Sec’s promoters)? How did the bank get the shareholders’ details? These concerns had  prompted the Indian stock exchanges, the BSE and the NSE, to ask I-Sec and ICICI Bank to clarify as well. I-Sec on 28 March 2024 in its response to the exchanges stated that it reached out to equity shareholders to explain the proposed scheme and the e-voting process to maximise participation in voting considering that the delisting was the first of its kind in India under Regulation 37. Is this a violation of an explicit legal prescription under the Delisting Regulations? Seems no. However, from a spirit perspective, could such reach-out strategies be seen as side-stepping what should be a fair and transparent public approval process? Depending on the conversations in question, the answer could swing either-ways. However, the act of individually contacting shareholders might not have been the most prudent strategy.


A group of minority shareholders have filed a class-action suit against ICICI Securities. Reports state that the shareholders have taken issue with: (i) ICICI Bank contacting them to influence the shareholders’ vote, (ii) the share-swap ratio for the delisting, and (iii) the exemption granted by SEBI to go ahead with the Regulation 37 delisting. The National Company Law Tribunal’s decision in this matter is awaited.

Conclusion

While the I-Sec delisting will be going ahead, it has been in the limelight for the way the delisting has happened. Avoiding public price discovery through the RBB process, taking an exemption from SEBI to delist under Regulation 37 when RBB process was available, valuations seeming unfair, public institutional shareholder voting being largely in favour while retail shareholders were staunchly against, and arguable undue influence employed by ICICI Bank to persuade shareholders to vote in favour of the delisting raise a few eyebrows from a corporate governance lens. It will be interesting to see how SEBI deals with such delistings going forward and if any concerns raised by public shareholders of I-Sec will be addressed in the future.

1 SEBI (Delisting of Equity Shares) Regulations, 2021 (“Delisting Regulations”).

2 SEBI circular on ‘Standard Operating Procedure for listed subsidiary company desirous of getting delisted through a Scheme of Arrangement wherein the listed parent holding company and the listed subsidiary are in the same line of business’ dated 06 July 2021.

3 As per I-Sec equity shareholders meeting held on 27 March 2024.

1 SEBI (Delisting of Equity Shares) Regulations, 2021 (“Delisting Regulations”).

2 SEBI circular on ‘Standard Operating Procedure for listed subsidiary company desirous of getting delisted through a Scheme of Arrangement wherein the listed parent holding company and the listed subsidiary are in the same line of business’ dated 06 July 2021.

3 As per I-Sec equity shareholders meeting held on 27 March 2024.

Private Funds and Asset Management

Analysis

Private Funds: SEBI introduces investor diligence requirements for AIFs

Private Funds: SEBI introduces investor diligence requirements for AIFs

  • SEBI has cast new investor diligence obligations on AIF managers, which extends to underlying investors
  • As per the new rule, the manager of an AIF is not permitted to on-board new investors or draw down capital from existing investors unless the diligence conditions have been complied with…
How to Negotiate Key Person Provisions – A Lawyer’s Guide

How to Negotiate Key Person Provisions – A Lawyer’s Guide

  • The occurrence of a key person event should not trigger a domino effect across other funds managed by the sponsor
  • The ‘time and attention’ requirement should be drafted so as to avoid inadvertent foot faults
  • The question of whether or not a key person event has occurred should not be the subject of a long-drawn determination process…
What’s Holding Back Indian Fund Managers From Raising Global Capital?

What’s Holding Back Indian Fund Managers From Raising Global Capital?

  • Indian fund managers, thus far restricted, may now be able to setup India-focussed offshore funds
  • Is investment by resident individuals in offshore funds now restricted, even under LRS? Not quite – we address the ambiguity
  • Will GIFT now emerge as the most favoured jurisdiction for setup of India-focussed funds?…
GP-Led Secondaries in India – Considerations and Challenges

GP-Led Secondaries in India – Considerations and Challenges

  • GP-led secondaries have become fairly popular globally given that they solve for the liquidity concerns among some LPs whilst allowing the GP to capture more upside from an investment.

  • In a GP- led secondary deal, it is important to find a pricing that works for the exiting investors but keeps the acquisition attractive for the incoming investors…
Private Funds: Corpus v Investible Funds – Need to reconsider SEBI’s penalty order?

Private Funds: Corpus v Investible Funds – Need to reconsider SEBI’s penalty order?

  • SEBI has strictly construed the term ‘investible funds’ leaving no scope for commercial nuances.
  • SEBI rules that estimated expenditure cannot be offset against estimated income streams when calculating investible funds.
  • SEBI appears to be driven by the view that investors should not be over-concentrated in a single asset…
Private Funds: SEBI holds AIF investors in breach of insider trading norms for AIF’s investments decisions

Private Funds: SEBI holds AIF investors in breach of insider trading norms for AIF’s investments decisions

  • SEBI holds investors of AIFs having UPSI/ MNPI in breach of insider trading norms for investment decisions of AIFs
  • Investors into pooled investment vehicles exposed to substantial risk for actions beyond their control and visibility
  • Compliance seems rather impractical and creates complications for both the AIF and its investors – bad law that needs to studied for its potential implications…
Private Funds: Six considerations when negotiating carry clawback provisions

Private Funds: Six considerations when negotiating carry clawback provisions

  • Clawback liability must be ascertained with respect to each investor
  • Standalone clawback obligations may not be sufficient
  • The clawback provision should include a true-up mechanism for sponsors…
GIFT City – Analysing New Fund Management Regulations and why GIFT City still doesn’t work

GIFT City – Analysing New Fund Management Regulations and why GIFT City still doesn’t work

  • IFSCA proposes significant shift in regulatory regime for investments funds – shift from investment vehicle towards fund management entity (FME)
  • Replacement of Category I, II and III AIFs under present AIF Framework with investment
    schemes viz. Venture Capital Scheme, Restricted Scheme (Non-Retail) and Retail Schemes…
SEBI formalises the use of co-investments but leaves some question marks?

SEBI formalises the use of co-investments but leaves some question marks?

  • SEBI introduces a new co-investment framework permitting AIF investors to co-invest alongside the AIF through portfolio managers
  • The new framework provides that co-investments cannot be on more favourable
    terms than AIF investments

  • Co-investments are not permitted in listed securities…

Research Paper

Fund Formation: The Beginning of the Fund Lifecycle for India Focussed Funds

Fund Formation: The Beginning of the Fund Lifecycle for India Focussed Funds

We are delighted to share our most recent and comprehensive research paper discussing at length the legal, tax, regulatory, commercial and strategic issues concerning the setting up of India focussed funds. Over the past few years, the investment funds industry has been the subject of a series of legislative and regulatory interventions designed variously to protect investor interests as well as to enlarge the scope of investment activity. From an Indian fund formation perspective, this is evidenced from the introduction of codes of conduct for various stakeholders,…

Public Equity

Analysis

Public M&A: New Delisting Norms – What is the Excitement Really About?

Public M&A: New Delisting Norms – What is the Excitement Really About?

  • SEBI’s Consultation Paper proposes a comprehensive review of counter-offer mechanism, counter-offer price discovery mechanism, fixed price mechanism, floor price and reference date
  • Fixed price delisting, largely regarded as a welcome move, fails to excite us and appears lackluster against the present reverse book building mechanism due to absence of a counter-offer mechanism
Public M&A: Are Warrants attractive price protection instruments?

Public M&A: Are Warrants attractive price protection instruments?

  • Recent SEBI informal guidance to Paramount clarifies ambiguity on holding periods for warrants
  • Though warrants could be listed, listed warrants are almost non-existent
  • Unlisted warrants cannot be transferred (no matter how long they’ve been held for)
  • Shares received upon conversion of warrants are locked-in for 6 months, but unlike
    other convertibles, the…

SEBI’s Proposed Disclosure Regime: Impact on Public M&A and Directors’ Liabilities

SEBI’s Proposed Disclosure Regime: Impact on Public M&A and Directors’ Liabilities

  • Most proposals are well thought through – unintended impact in a few cases
  • Mandatory clarification of media rumours – M&A dealmaking compromised and potential creation of a false market?…
Unexplored Strategies in the Fortis Saga: Public shareholders and IHH Healthcare exposed to significant collateral damage?

Unexplored Strategies in the Fortis Saga: Public shareholders and IHH Healthcare exposed to significant collateral damage?

  • Latest SC judgement uncovers Daiichi’s new approach – Fortis, IHH and, public shareholders under the gun for liabilities of Fortis’ erstwhile promoters
  • Public shareholders will need to brace for impact and be proactive – else risk getting the short end of the stick
  • Legal sanctity of the ‘theory of attribution’ possibly misplaced in the Fortis context…
SEBI orders public disclosure at M&A negotiation stage: Compromises deal certainty and amplifies directors’ liabilities

SEBI orders public disclosure at M&A negotiation stage: Compromises deal certainty and amplifies directors’ liabilities

  • Listed companies forced to publicly disclose deal details pending finalization of negotiations
  • Investors bereft of price and deal certainty, may even face reputational damage
  • Directors of listed companies may be liable for market manipulation and exposed to litigation if they publicly disclose a deal which then falls through…
Decoding Boardroom Dilemmas (Part III): Can Nominee Directors Share UPSI with Nominating Shareholders?

Decoding Boardroom Dilemmas (Part III): Can Nominee Directors Share UPSI with Nominating Shareholders?

  • No express framework exists for nominee directors to share UPSI with nominating shareholders
  • Natural expectation that nominee directors should represent their nominators’ interests – not permitted under law
  • Since nominee directors’ fiduciary duty remains towards the company and stakeholders, nominee directors are paradoxically placed and exposed to significant…
Decoding Boardroom Dilemmas – Hiving Off to Fundraise Through Subsidiaries – Commercial Wisdom or Short-Changing Public Shareholders?

Decoding Boardroom Dilemmas – Hiving Off to Fundraise Through Subsidiaries – Commercial Wisdom or Short-Changing Public Shareholders?

  • Transferring a majority-revenue generating business into a private subsidiary (hiving off) and raising funds at the subsidiary level is increasingly seen as a preferred alternative to direct listed acquisitions or slump sales
  • Hiving off may result in a ‘holding company discount’ and public shareholders lose out on value…
Private Funds: SEBI holds AIF investors in breach of insider trading norms for AIF’s investments decisions

Private Funds: SEBI holds AIF investors in breach of insider trading norms for AIF’s investments decisions

  • SEBI holds investors of AIFs having UPSI/ MNPI in breach of insider trading norms for investment decisions of AIFs
  • Investors into pooled investment vehicles exposed to substantial risk for actions beyond their control and visibility
  • Compliance seems rather impractical and creates complications for both the AIF and its investors – bad law that needs to studied for its potential implications…

Private Equity/ M&A

Analysis

SEBI is slowly re-defining InvITs: What’s at risk for the product and its institutional audience?

SEBI is slowly re-defining InvITs: What’s at risk for the product and its institutional audience?

  • Strong minority unitholder protections introduced – for both public and private InvITs
  • Private InvITs originally designed to attract large institutional capital – light touch re- gulations allowed flexibility to parties to manage their arrangements…
Investing into Infrastructure Holding Companies: What if you become a core investment company?

Investing into Infrastructure Holding Companies: What if you become a core investment company?

  • Infrastructure companies are mandated to execute concessions through SPVs, which often results in qualification of the holding company as a core investment company (CIC)
  • CIC risk is often avoided by structuring EPC and O&M revenues through the hol- ding company and swelling …
Blurring lines between FPI and FDI: Can foreign investors really acquire less than 10% listed stake off market?

Blurring lines between FPI and FDI: Can foreign investors really acquire less than 10% listed stake off market?

  • Investors face roadblocks in picking up less than 10% listed stake off the market under the FDI route
  • The shift from an investor-centric to investment-centric regime has been rather mismanaged, leading to divergent market practices…
EduInfra  – Emergence of a new asset class

EduInfra – Emergence of a new asset class

  • EduInfra offers a promising 10 – 11% entry cap rate for annuity investors with rental escalations in the region of 3
    – 5%

  • Infrastructure classification allows for tax optimal exit through InvITs
  • Seller awareness needed – operators slowly moving towards asset light models; depth, but potential…
Investor or developer? Real estate regulator (RERA) classifies real estate fund as a promoter

Investor or developer? Real estate regulator (RERA) classifies real estate fund as a promoter

  • The term ‘causes to construct’ in the definition of ‘promoter’ under RERA has been interpreted to include private funds exercising rights typical to such investments

  • Protective rights of investors have been interpreted as being secondary to the rights of the homebuyers – in a conflict, the latter should be protected, notwithstanding inter-se contractual relationship between developer and fund…
Revamped Overseas Investment Regime (Part I) – A Rational Overhaul

Revamped Overseas Investment Regime (Part I) – A Rational Overhaul

  • Round tripping no longer illegitimate – doors open for externalisation and de-SPAC transactions
  • Definitional clarity on direct investments and portfolio investments
  • Indian GPs get a glidepath to setup offshore pooling structures…

Private Credit / Structured Finance

Analysis

C&I Green Open Access-play: The next big investment destination for infra funds?

C&I Green Open Access-play: The next big investment destination for infra funds?

  • C&I market significantly untapped – accounts for just 6% of the total renewable power purchases
  • Captive open access the most preferred route – i.e. procuring power for captive consumption from private renewable players using govt. transmission facilities.
  • C&I consumer perspective – low investment, significant cost savings,
Smart meters: The basic infrastructure for a green future

Smart meters: The basic infrastructure for a green future

  • Smart meters are essentially a data play – offering unprecedented data that can be used to bring online more green energy, curb electricity loses and reduce costs for consumers
  • The sector has immense depth – USD 30 bn over just the next 2-3 years….
SEBI is slowly re-defining InvITs: What’s at risk for the product and its institutional audience?

SEBI is slowly re-defining InvITs: What’s at risk for the product and its institutional audience?

  • Strong minority unitholder protections introduced – for both public and private InvITs
  • Private InvITs originally designed to attract large institutional capital – light touch re- gulations allowed flexibility to parties to manage their arrangements…
Revamped Overseas Investment Regime (Part II) – Overseas Debt Investments Rationalized

Revamped Overseas Investment Regime (Part II) – Overseas Debt Investments Rationalized

  • Control threshold introduced for offshore debt – a shift of focus towards strategic growth
  • Offshore private credit and special situation funding now permitted
  • Debenture trustee’s introduced to encourage offshore funding to an Indian entity…
Private Credit: Supreme Court holds that ownership of pledged shares remains with pledgor despite transfer to pledgee 

Private Credit: Supreme Court holds that ownership of pledged shares remains with pledgor despite transfer to pledgee 

  • SC overrules a series of prior rulings which held that pledgee becomes the owner of pledged shares upon invocation.
  • SC holds that even though pledgee is recorded as beneficial owner upon invocation, pledgee only receives ‘special rights’ and not ‘ownership’ over pledged shares.
  • The term ‘actual sale’ means sale to a third party…
Threat of valuation litigation in Public M&A – Carlyle-PNB Effect! 

Threat of valuation litigation in Public M&A – Carlyle-PNB Effect! 

  • SEBI floor price prescription in case of fund raises should not automatically dislodge directors’ duty to exercise independent judgment and maximise shareholder value
  • Target boards to proactively consider appointing an independent banker and running a robust auction process for capital raises…
SEBI Introduces Special Situation Funds: Opens doors for acquisition of stressed loans without ARC intermediation

SEBI Introduces Special Situation Funds: Opens doors for acquisition of stressed loans without ARC intermediation

  • Special Situation Funds (SSF) have been launched Category – 1 AIF for sophisticated investors
  • Offshore investors no longer have to rely on an Asset Reconstruction Company /
    Asset Reconstruction Trust framework to invest in stressed assets…

Research Paper

C&I Green Open Access-play: The next big investment destination for infra funds?

C&I Green Open Access-play: The next big investment destination for infra funds?

  • C&I market significantly untapped – accounts for just 6% of the total renewable power purchases
  • Captive open access the most preferred route – i.e. procuring power for captive consumption from private renewable players using govt. transmission facilities.
  • C&I consumer perspective – low investment, significant cost savings,
Smart meters: The basic infrastructure for a green future

Smart meters: The basic infrastructure for a green future

  • Smart meters are essentially a data play – offering unprecedented data that can be used to bring online more green energy, curb electricity loses and reduce costs for consumers
  • The sector has immense depth – USD 30 bn over just the next 2-3 years….
SEBI is slowly re-defining InvITs: What’s at risk for the product and its institutional audience?

SEBI is slowly re-defining InvITs: What’s at risk for the product and its institutional audience?

  • Strong minority unitholder protections introduced – for both public and private InvITs
  • Private InvITs originally designed to attract large institutional capital – light touch re- gulations allowed flexibility to parties to manage their arrangements…
Structures and Considerations for Offshore Debt Funding

Structures and Considerations for Offshore Debt Funding

Special situations and private credit funds have been increasingly looking at the high yield Indian market. With banks facing liquidity and risk issues, alternate capital with customised solutions seem attractive. Structured commonly through collateralised redeemable bonds with pay-outs deferred until maturity, these bonds may have equity kickers built-in as well, in the form of redemption premium linked to any variable, such as underlying equity share price or cashflows. While offshore capital is interested, currency, tax withholdings, enforceability and regulatory risks dampen the return profile on a risk-adjusted dollar return basis…

Infrastructure Investment Trusts

Analysis

C&I Green Open Access-play: The next big investment destination for infra funds?

C&I Green Open Access-play: The next big investment destination for infra funds?

  • C&I market significantly untapped – accounts for just 6% of the total renewable power purchases
  • Captive open access the most preferred route – i.e. procuring power for captive consumption from private renewable players using govt. transmission facilities.
  • C&I consumer perspective – low investment, significant cost savings,
Smart meters: The basic infrastructure for a green future

Smart meters: The basic infrastructure for a green future

  • Smart meters are essentially a data play – offering unprecedented data that can be used to bring online more green energy, curb electricity loses and reduce costs for consumers
  • The sector has immense depth – USD 30 bn over just the next 2-3 years….
SEBI is slowly re-defining InvITs: What’s at risk for the product and its institutional audience?

SEBI is slowly re-defining InvITs: What’s at risk for the product and its institutional audience?

  • Strong minority unitholder protections introduced – for both public and private InvITs
  • Private InvITs originally designed to attract large institutional capital – light touch re- gulations allowed flexibility to parties to manage their arrangements…
Investing into Infrastructure Holding Companies: What if you become a core investment company?

Investing into Infrastructure Holding Companies: What if you become a core investment company?

  • Infrastructure companies are mandated to execute concessions through SPVs, which often results in qualification of the holding company as a core investment company (CIC)
  • CIC risk is often avoided by structuring EPC and O&M revenues through the hol- ding company and swelling …
Budget 2023: Impact on InvITs

Budget 2023: Impact on InvITs

  • Distributions out of repayment of debt principal could now be taxed as ‘other income’ – at odds with global standards
  • Distributions out of debt repayments through redemption of units not treated as ‘income’, but reduce cost of acquisition – InvIT / REIT Regulations do not permit redemption of units…
EduInfra  – Emergence of a new asset class

EduInfra – Emergence of a new asset class

  • EduInfra offers a promising 10 – 11% entry cap rate for annuity investors with rental escalations in the region of 3
    – 5%

  • Infrastructure classification allows for tax optimal exit through InvITs
  • Seller awareness needed – operators slowly moving towards asset light models; depth, but potential…
Listed or Unlisted InvITs – Which way to go?

Listed or Unlisted InvITs – Which way to go?

  • Tracking evolution of InvITs – resurgence and success
  • Debate between private listed and unlisted InvITs – which way to go?
  • Unlisted InvITs remain attractive for investors seeking tax optimal returns and deregulated landscape…

Research Paper

C&I Green Open Access-play: The next big investment destination for infra funds?

C&I Green Open Access-play: The next big investment destination for infra funds?

  • C&I market significantly untapped – accounts for just 6% of the total renewable power purchases
  • Captive open access the most preferred route – i.e. procuring power for captive consumption from private renewable players using govt. transmission facilities.
  • C&I consumer perspective – low investment, significant cost savings,
Smart meters: The basic infrastructure for a green future

Smart meters: The basic infrastructure for a green future

  • Smart meters are essentially a data play – offering unprecedented data that can be used to bring online more green energy, curb electricity loses and reduce costs for consumers
  • The sector has immense depth – USD 30 bn over just the next 2-3 years….
SEBI is slowly re-defining InvITs: What’s at risk for the product and its institutional audience?

SEBI is slowly re-defining InvITs: What’s at risk for the product and its institutional audience?

  • Strong minority unitholder protections introduced – for both public and private InvITs
  • Private InvITs originally designed to attract large institutional capital – light touch re- gulations allowed flexibility to parties to manage their arrangements…
Investing into Infrastructure Holding Companies: What if you become a core investment company?

Investing into Infrastructure Holding Companies: What if you become a core investment company?

  • Infrastructure companies are mandated to execute concessions through SPVs, which often results in qualification of the holding company as a core investment company (CIC)
  • CIC risk is often avoided by structuring EPC and O&M revenues through the hol- ding company and swelling …
InvITs: Gamechanger in the Indian Infrastructure Story!

InvITs: Gamechanger in the Indian Infrastructure Story!

Infrastructure has been the highest capital receiver in 2021, and InvITs continue to be the most favoured investment vehicle for sponsors and global investors alike. InvITs have received >USD 10 billion of investments in the last couple of years, with investments from some of the largest fund houses. The roads regulator of India (NHAI) has also launched its maiden InvIT – with an EV of >USD 1.1bn and participation from large pension funds (CPPIB and OTPP). KKR has again sponsored another InvIT in the renewables space (Virescent Infrastructure) – raising capital from a clutch of investors led by Alberta Investment Management Corporation…

Stakeholder Governance and Stewardship

Analysis

Public M&A: Do List Cos Really Need Omnibus RPT Approvals?

Public M&A: Do List Cos Really Need Omnibus RPT Approvals?

  • There seems to be an overlap between regular RPT approvals and omnibus approval routecreating ambiguity on what type of approvals must be procured for long term related partycontracts?
  • Listed companies often enter into long term contracts with…
SEBI’s Proposed Disclosure Regime: Impact on Public M&A and Directors’ Liabilities

SEBI’s Proposed Disclosure Regime: Impact on Public M&A and Directors’ Liabilities

  • Most proposals are well thought through – unintended impact in a few cases
  • Mandatory clarification of media rumours – M&A dealmaking compromised and potential creation of a false market?…
Unexplored Strategies in the Fortis Saga: Public shareholders and IHH Healthcare exposed to significant collateral damage?

Unexplored Strategies in the Fortis Saga: Public shareholders and IHH Healthcare exposed to significant collateral damage?

  • Latest SC judgement uncovers Daiichi’s new approach – Fortis, IHH and, public shareholders under the gun for liabilities of Fortis’ erstwhile promoters
  • Public shareholders will need to brace for impact and be proactive – else risk getting the short end of the stick
  • Legal sanctity of the ‘theory of attribution’ possibly misplaced in the Fortis context…
Decoding Boardroom Dilemmas (Part III): Can Nominee Directors Share UPSI with Nominating Shareholders?

Decoding Boardroom Dilemmas (Part III): Can Nominee Directors Share UPSI with Nominating Shareholders?

  • No express framework exists for nominee directors to share UPSI with nominating shareholders
  • Natural expectation that nominee directors should represent their nominators’ interests – not permitted under law
  • Since nominee directors’ fiduciary duty remains towards the company and stakeholders, nominee directors are paradoxically placed and exposed to significant…
Decoding Boardroom Dilemmas – Hiving Off to Fundraise Through Subsidiaries – Commercial Wisdom or Short-Changing Public Shareholders?

Decoding Boardroom Dilemmas – Hiving Off to Fundraise Through Subsidiaries – Commercial Wisdom or Short-Changing Public Shareholders?

  • Transferring a majority-revenue generating business into a private subsidiary (hiving off) and raising funds at the subsidiary level is increasingly seen as a preferred alternative to direct listed acquisitions or slump sales
  • Hiving off may result in a ‘holding company discount’ and public shareholders lose out on value…
Threat of valuation litigation in Public M&A – Carlyle-PNB Effect! 

Threat of valuation litigation in Public M&A – Carlyle-PNB Effect! 

  • SEBI floor price prescription in case of fund raises should not automatically dislodge directors’ duty to exercise independent judgment and maximise shareholder value
  • Target boards to proactively consider appointing an independent banker and running a robust auction process for capital raises…

Research Paper

Public M&A: Do List Cos Really Need Omnibus RPT Approvals?

Public M&A: Do List Cos Really Need Omnibus RPT Approvals?

  • There seems to be an overlap between regular RPT approvals and omnibus approval routecreating ambiguity on what type of approvals must be procured for long term related partycontracts?
  • Listed companies often enter into long term contracts with…
Should Offshore Funds Appoint Directors?

Should Offshore Funds Appoint Directors?

The issue of director duties and attendant liabilities has been a subject of immense debate as the role of directors evolves in the Indian context. India is perhaps a decade behind the west in this evolution process, though rapidly catching up driven by increasingly proactive proxy advisory firms and institutional capital taking significant positions in Indian companies, though activist funds are still a rarity. Transcendence from ‘complying with their obligations’ to ‘performing their duties’ has probably been most transformational and manifested only in the past couple of years…

Tax Structuring & Litigation

Analysis

Ambiguity with thin cap norms: Private credit players risk significant tax leakage

Ambiguity with thin cap norms: Private credit players risk significant tax leakage

  • Accurate reading of thin capitalization norms is highly relevant to maximize IRRs, especially in asset heavy sectors
  • Currently, norms interpreted such that sometimes the entire interest paid to foreign related parties is disallowed for the target (as expense)…
Private Credit: Interest on NCDs recharacterized as dividends 

Private Credit: Interest on NCDs recharacterized as dividends 

  • Tax authorities recharacterized interest income on NCDs as dividends
  • Interest recharacterization has not taken place under GAAR
  • Investors can prevent such mischaracterization by demonstrating the nature of the underlying instrument, periodicity of payments, maturity date, management rights,
    etc….
Denial of tax treaty benefits: Blueprinting defence strategies for PE funds – A tax litigation perspective

Denial of tax treaty benefits: Blueprinting defence strategies for PE funds – A tax litigation perspective

  • Revenue has issued reassessment orders to several global PE/VC funds denying
    tax treaty benefits to grandfathered investments alleging treaty shopping through Mauritius and Singapore between AY 2013-14 and 2015-16

  • Substantial tax, interest, and penalty has been levied invoking judicial anti-avoidance principles based on a supposed lack of commercial substance in these jurisdictions…
Top 5 Tax Considerations When Structuring Debt Investments in India

Top 5 Tax Considerations When Structuring Debt Investments in India

  • Recent developments in the Indian tax regime have brought India closer to global
    norms though hybrid instruments that have come under increased scrutiny

  • GAAR provisions have enabled tax authorities to examine the commercial substance of transactions, underscoring the importance of purpose, pooling, and people…

Register Now