INDIA Law and Practice Contributed by: Anish Mashruwala, Utsav Johri, Megha Upadhyaya and Sahil Unadkat, JSA
2.3 Language There are no specific legal requirements as to the language in which documentation for acquisition financing is to be drafted. However, all finance documents for acquisition financings, securities and guarantees are in English. 2.4 Opinions Where a finance document is executed by an Indian company (resident or national), standard capacity, authority and enforceability legal opin- ions are issued. The opinions are issued based on the conditions-precedent documents pro- vided by the borrower/obligors. 3. Structures 3.1 Senior Loans Inbound Acquisition Finance: Offshore Acquirer Typically, the offshore acquirer sets up a special- purpose vehicle outside India (FDI SPV), which acquires shares of an Indian target through for- eign direct investment (FDI) into India. The FDI SPV raises debt from offshore lenders in the form of senior loans to finance the acquisition. Such loans are secured by the assets and shares of the FDI SPV (other than the shares of the Indian target and any other Indian asset). Given that there are restrictions under Indian exchange control laws on pledging shares of an Indian target to secure acquisition finance availed by the FDI SPV, generally a non-disposal undertaking is obtained in relation to the Indian target shares held by the acquirer, coupled with a pledge on the acquirer shares. If the Indian target is a listed company and the FDI SPV holds (together with persons acting in concert) 25% or more shares or voting rights in
the target, or controls the target, any enforce- ment of the pledge on the shares of the FDI SPV may trigger a mandatory open-offer require- ment under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (the “Takeover Regulations” ). A mandatory open offer must be made for at least 26% of the voting shares of the target. In the case of sponsor financing, the financing may also benefit from an equity commitment let- ter from the sponsor. Inbound Acquisition Finance: FOCC As mentioned previously, a FOCC cannot use acquisition finance from Indian banks, financial institutions or Indian funds, as FOCCs are not permitted to leverage in the Indian market to acquire shares. If the acquisition is through a FOCC, the debt can be raised by the FOCC by issuing NCDs subscribed to by FPIs. NCDs are structured as senior debt and are secured by the assets of the FOCC and a pledge on the shares of the target. Further, if the target is a private limited company, security can be created on the assets of the target to secure the acquisi- tion finance. However, such security may need to be shared with the other lenders of the FOCC and the target. Outbound Acquisition Finance For an outbound acquisition made directly by an Indian acquirer, the following financing struc- tures are typically adopted. Onshore financing While the RBI guidelines restrict an Indian bank’s ability to finance the acquisition of equity shares of an Indian company, save for excep- tional cases, an Indian company can raise loans from Indian banks for an outbound acquisition. Such loans can be utilised by the Indian com-
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