Research

Public M&A: JV’s with exclusivity under SEBI’s scanner – The Linde Case

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 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

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?

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

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?

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?

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?

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?

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 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 …
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…
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)…
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…
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?…
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…
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…
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?…
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…
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…
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…
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…
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…
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 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….
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…
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…
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…
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…
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…
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…
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…
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 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…
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…
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…

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,…

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…

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…

Resolüt Audio

Episode 1

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

Available On

About Album

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

Episode 2

Denial of tax treaty benefits

Available On

About Album

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.

Resolüt Video

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

InvITs and Infrastructure – Unconference

Event: Wednesday, 13 July, 2022 | Four Season Hotel, Mumbai

Who Will Move To GIFT City?

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?

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

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

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?

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.

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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…

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