Insider Trading Regulations: SEBI Tightens the Noose
- Scope of Unpublished Price Sensitive Information has been expanded
- Most events/information requiring disclosure under the Listing Regulations will now be treated as UPSI…..
Research
Private Credit In Listed Companies: The RPT Dilemma
- Listed holding companies often support credit availed by group entities,triggering ‘related party transaction’ (RPT) compliances
- We examine the nuances and tricky decisions around…..
The Adani Indictment: Untangling the Legal Web of Potential Violations in India
- Allegations in the Adani indictment, if true, raise several questions about the company’s potential violations under Indian securities laws
- Critically, questions around the timing of disclosures and accuracy of statements made – are there lessons to be learnt?….
Part 1: CCI approval for minority PIPE deals – to file or not to file?
- CCI’s recent changes streamline the ‘solely as investment’ exemption –
most relevant for minority PIPE investments - <25% acquisitions without control, board representation and ‘commercially sensitive information’ rights exempt if acquirer has no overlapping investments....
India’s New Global M&A Flavour: Cash-free M&A, SPACs, Roll-ups now possible?
- Foreign expansion of Indian companies gets a boost – offshore acquisitions now allowed by share swaps
- SPACs and roll-ups greenlit – foreign investors can now acquire Indian companies by a share swap….
Should investors be subjected to “gift-tax” when subscribing to listed shares?
- Listed companies generally issue the shares at SEBI mandated floor price. However, allotment of shares due to procedural requirements can happen only after a month or more resulting in stock price run up and notional gains
- This run up in market price may inadvertently be caught under ambit of “gift tax”, which seeks to tax the difference between consideration paid and fair value (market price) on the day of receipt of shares as deemed income of the shareholder….
Employee Incentivisation in InvITs – What is SEBI regulating?
- SEBI introduces framework for unit-based employee benefit plans for employees of the investment manager of the InvIT. All such plans now to be managed through an employee benefit trust (EBT)
- Trust can acquire units from the secondary market or get them from the manager (swapped for management fees) – in each case subject to 60% unit-holder approval ….
SEBI vs Hindenburg: Separating The Law From The Noise
- SEBI issues show-cause notice to Hindenburg, alleges violation of securities laws and fraud
- Hindenburg in its public response calls SEBI’s notice as ‘non-sense’ and lacking substance ….
The Road To Take-Private In India: What’s The Most Efficient Route For Deal-Making?
- Fixed price delisting debuts as an alternative to RBB, but lackluster in the absence of counter-offer ability
- Reverse Book Building (RBB) made a bit more palatable with easing of counteroffer mechanics, yet route continues to remain inadequate ….
Public M&A: JV’s with exclusivity under SEBI’s scanner – The Linde Case
- Independent Directors must pay closer attention to transactions with related parties. They should ask- are there any non-price factors that are not reflected in the transaction price? If yes, what is the value of these factors? Can they trigger the materiality threshold and need shareholder approval?
- Non-price factors could be a non-compete clause, especially crucial in case of hive-off or joint venture transactions…
ICICI Securities Delisting: What really are the issues?
- 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? ….
Shadow trading – a new chapter in Insider Trading? Learnings from US SEC
- In a novel case of Shadow Trading, California District Court held that MNPI about
one company could count as MNPI for another company if they are economically
linked - What is Shadow Trading? What is the concept of economically linked entities? How
is international jurisprudence…
RBI eases restrictions on Bank investments into AIF – Why and what next?
- ‘Evergreening’ of loans by banks, NBFCs, etc. through fund structures shut down
through 2 circulars – Banking entities can no longer indefinitely extend loan tenures
by transferring their loan exposures to AIFs - In RBI’s first circular, banks having indirect exposure to a borrower through an AIF required to either liquidate their…
Group Captive Upheld –Stage Set for C&I Secondaries
- Fetters on captive open access removed – group open access now has clear, consistent standards.
- ‘Captive User’ benefit not limited only to those who establish/ set up the plant but also to those who acquire later – providing much needed relief for secondary buyers of C&I assets.
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: Does SEBI’s Market Rumour Proposal Offer the Much-Needed Price Protection?
- In June 2023, SEBI introduced “rumour verification requirements” requiring listed companies to address market rumours; trigger for “materiality” pegged to “expected impact”on turnover, net worth, or value of profit/loss after tax
- SEBI’s December 2023 Consultation Paper now proposes to (a) peg materiality…
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…
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…
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 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?
- 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?
- 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?
- 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…
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)…
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…
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?…
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
- 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…
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
- 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…
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?…
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
- 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…
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…
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…
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…
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…
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 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….
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…
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…
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…
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…
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
- 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…
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…
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…
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 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…
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…
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…
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,…
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…
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…
Resolüt Audio
Decoding SEBI’s Proposal On Restricted Return InvITs: Target Audience, Benefits & Global Appeal
What’s been missing in India’s InvIT landscape? A product that acts as a true bond proxy, some might say. Well, SEBI’s proposed Restricted Return InvITs delivers just that.
This new product offers risk-averse investors a safe, fixed return, with the downside protected and the upside capped. But it’s not just for investors- sponsors stand to gain too. Any returns beyond the promised payout go straight to them, and if returns dip below expectations, sponsors will have to step in to cover the shortfall.
In this episode of Resolüt Audio, host Payaswini Upadhyay speaks to Ruchir Sinha to examine the proposals, explore how sponsor-investor agreements could evolve and who the target investors are for this product.
Public Market Trades in India: The FPI-FDI Problem
Navigating India’s Foreign Portfolio Investor (FPI) and Foreign Direct Investment (FDI) regime can be quite complex, especially in public market transactions. The recent shift from an investor-centric regime, which focused on the nature of the investing entity rather than the quantum of the investment, to an investment-based regime, where the investment type determines FPI or FDI status, has only added a layer of confusion.
Questions frequently arise: Can an FPI subscribe to preferential allotments below 10%? Can FDIs participate in IPO rounds? And what happens in cases like Zomato’s – is it possible for the same entity to invest through both FPI and FDI routes in one company?
In this episode of Resolüt Audio, host Payaswini Upadhyay speaks with Samaahith Addoor on some of the crucial FPI-FDI nuances for public market investments.
Denial of tax treaty benefits
In the second episode of Resolüt Audio, host Ruchir Sinha speaks with Anandu Unnikrishnan on the key case laws underpinning the Income Tax Department’s recent notices against offshore funds. They examine the material facts and circumstances in each of these cases and lay out practise-based mitigants that offshore investors can adopt. They also examine critical questions surrounding the morality of taxation, the scope for interpretation in tax law, and the need for caution as tax authority continue to gain broad-reaching powers.
Private Credit: Supreme Court holds that ownership of pledged shares remains with pledgor despite transfer to pledgee
Resolüt Audio is our initiative to present to you our analysis on legal and tax issues in a simple and de-jargonized manner through free-flowing conversations.In the first episode of Resolüt Audio, host Raina talks with Ruchir on the recent Supreme Court Judgement in the PTC India case.They talk about the regulation of pledged dematerialized shares and the implications of the PTC judgement while providing a broad overview on the law of pledge and the challenges of reconciling the statutory requirements to dematerialized shares.
Their analysis of the PTC India can be accessed here: https://bit.ly/3AFsrwn
Resolüt Video
SM REITs: Context, Commercials & Concerns
Quick Take: Friday, 18 October, 2024
Carlos Ugarte on why Ferrovial – Cintra chose India
Interview: Friday, 12 July, 2024
New Delisting Amendments: What really changes for dealmaking?
Webinar: Friday, 05 July, 2024
Evolving structures and strategies for real estate alternatives
Event: Thursday, 16 February, 2023 | The Quorum Mumbai
Art Rules
Seminar: Friday, 13 January, 2023 | Hall of Harmony, Nehru Centre, Worli
Playlist
2 Videos
Public M&A – Dealmaking and Director Liabilities
Webinar: Wednesday, 30 November, 2022
Playlist
2 Videos
InvITs and Infrastructure – Unconference
Event: Wednesday, 13 July, 2022 | Four Season Hotel, Mumbai
Playlist
6 Videos
Who Will Move To GIFT City?
It’s Singapore, Cayman Islands, Luxembourg, Ireland, Mauritius vs GIFT City. Or at least that’s the ambition — to be counted in the league of fund-friendly jurisdictions. To that end, the International Financial Services Centre Authority (IFSCA) has floated draft proposals for fund management activity in GIFT City. Until 2020, the Securities and Exchange Board of India provided a broad framework …
SEBI’s Public Float for Private Unlisted InvITs – an instance of Regulatory Overreach?
Infrastructure development has been a focal point for the Narendra Modi government. Indian infrastructure has historically failed to attract large offshore capital due to various systemic reasons – one such reason being the lack of a well-governed tax optimal investment structure. To address this, the Securities and Exchange Board of India introduced public or privately listed infrastructure investment trusts allowing for a SEBI governed tax-optimised investment regime…
Decoding India’s Infrastructure Investment Trusts
The Indian infrastructure story has been one of few successes and many challenges. To identify the most optimal route and vehicle that can attract long-term high value private capital in the infrastructure sector, the Securities and Exchange Board of India (SEBI) rolled out the ‘InvIT’ regime in 2014,
Evolving Negotiation Strategies in Late-Stage PE Investments
Private equity (PE) investments into India are at an all-time high, with more than $11 billion invested by PE funds in 2017. The keenness now is more towards late-stage companies as compared to growth and venture investments. Fund raising by these late-stage companies has also become sophisticated, with many founders opting to run a bid process, on the back of a proven track record of performance and ethics…
REITs – Will they now be a reality?
Whilst the markets have given a warm reception to infrastructure investment trusts (InvITs) and a spate of InvITs are in the pipeline, the fate of real estate investment trusts (REITs) remains to be seen. REITs still haven’t taken off and there is a degree of morbid scepticism around the success of a REIT.
