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…
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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…
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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…
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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…
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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…