M&A Critique - February 2020

The union budget was expected to boost capital market to enable Indian economy to reach level $5 trillion. The theme of economic survey is to create wealth and respect wealth creators as main policy objectives. The budget provides for simplification of tax provisions and one-time settlement scheme where the matter is pending at appellate level. In the process of simplifying, it does create hardship to some taxpayers may be unintended. Keeping tax rates for partnership firms and LLPs and proprietary concern unchanged leads to higher tax burden for MSMEs, though definitely not intended. We also had RBI policy announcement which kept interest rate unchanged. However, to boost the economy ,first time it provided for bank not to set-aside CRR, if they are lending to housing, auto, and micro, small and medium enterprises (MSMEs).This will give more liquidity in the hands of the banks and reduces interest rate charged to the borrowers

Reliance Industries announced a share swap in December 2019 with Reliance Retail shareholders mean especially for the employees of Reliance Retail holding about 0.05% shares or restricted shares or restricted stock units under various ESOPs over the years. In this cover article we see at the amendment done in the scheme for the share swap as many of the minority shareholder were not happy with the valuation at which the share swap was to be done. Also RIL has created an SPV for buying out these shares and whether it could be achieved via simpler means.

Under the disinvestment exercise by the government we are seeing a lot of mergers in the PSUs Bank sectors in these past few years but merger of NBFCs are rare. A few attempts in the past of the merger although approved by the NCLTs was rejected by the RBI being the main regulatory body for all NBFCs. Credit Access Grameen has announced for a 2 Step, part cash and part stock merger with Madura Micro Finance. We look in details of the 2 steps involved in this transaction which subject to thumbs up from the RBI.

DCM group has done quite a few restructurings in the past. We covered one of them in our July 2017 issue. The group has engineering and manufacturing background and has some real estate businesses as well which they have been trying to either segregate or get rid off for quite sometime. In this article, DCM Ltd announced a scheme to sell its Engineering Business to DCM Engineering Ltd. along with all the debts which are attached to it. The article looks at the options given to the Secured Creditors which they can choose to execute over the coming 5 years and DCM group chance not to got into Insolvency.

Even after government initiatives and focus on getting all of our citizens healthcare insurance so that they can get better facilities at an affordable rate we still have very penetration when it comes a person having health insurance. Health Insurance providers, govt. or private, has seen some consolidation in this past few years. The main reason, even after an increase in premium collection, is the claim ratio is very high and in some more than 100%. In this article we look at some past mergers in this industry and understand the reason for future consolidation.

In our legal section we have 2 articles, one being opposed by the IT department on the basis of possible tax evasion and one rejected by NCLT due to non-clarity or its rigidity to stick to the letter of the law. NCLAT approved Reliance Jio demerger scheme after rejecting the objections by the IT Dept. that the scheme was in violation of Sec 52, 55 & 66 of the Companies Act, 2013. IT dept. viewed the conversion of preference shares into an interest free loan as a means to evade tax on possible interest and opposed the approval of the scheme and took it NCLAT without success. Cross-border transactions viz. mergers, demergers and acquisition are not rare. Sun Pharma to consolidate its subsidiaries has submitted a scheme to transfer its investment undertakings in Netherlands based WoS deemed as cross-border demerger. The article looks at why the scheme was disallowed by NCLT and whether there is need of change in the current acts/sections to allow such demerger transactions.

Along with regular features……….