INDIA Trends and Developments Contributed by: Anish Mashruwala, Utsav Johri, Megha Upadhyaya and Sahil Unadkat, JSA
continues to play a very active role in financing assets in both special and standard situations. Funds set up in Gujarat International Finance Tec-City (GIFT City), the International Financial Services Centre (IFSC) in India (which are reg- istered as FPIs), are also expected to evolve as major players in this space, owing to their ability to raise financing and favourable tax treatment compared to other FPIs. Multiple international investors and banks have engaged in setting up FPIs in GIFT City. Further, family investment funds (ie, funds pooling money only from a single family under one or more investment vehicles) have now also been permitted to be set up in the IFSC, and such funds can be construed as AIFs. Whether such funds will become active in the acquisition finance space remains to be seen. Inbound acquisitions Interest in acquisitions of Indian businesses by offshore entities has been significant, in spite of a sluggish global economy. Such investments fall under the FDI route prescribed by the Indian foreign exchange laws. The major players for acquisition financings raised outside India remain international banks. The number of banks who are active and inter- ested in this space has increased significantly in recent years, and such acquisition financ- ings have been widely syndicated. Global credit funds and pension funds have also been actively participating in this space. International capital markets, financial institutions and other debt funds also continue to play an important role. Owing to Indian exchange control regulations, inbound acquisition financings have restrictions on the security over shares or assets of the Indian target. Further, the Indian target cannot provide any guarantee.
If the acquisition is by a wholly owned subsidi- ary of the offshore acquirer in India, which is set up as a foreign owned or controlled company (FOCC), such entity cannot raise leverage in India for investment in shares of another entity. Sources of debt financing for FOCCs and for acquisitions continue to be issuance of listed non-convertible debentures (NCDs) to FPIs, and availing external commercial borrowings (ECBs) Indian corporates have been active in out- bound acquisitions in the recent past, and a lot of deal activity has been witnessed in this space. Despite global economic turbulence, outbound deal activity by Indian corporates with strong foundations is expected to see continued growth. Indian companies are expected to make the most of offshore acquisition opportunities at attractive valuations in stressed, performing and strategic cases. for business transfers. Outbound acquisitions The revised guidelines governing outbound investments by Indian entities introduced by the RBI in 2022 (the “OI Guidelines” ) have pro- vided further impetus to acquisition financings for offshore acquisitions by Indian companies. The OI Guidelines have created new opportuni- ties for non-bank lenders (such as debt funds, credit funds and other financial institutions). This is because, under the OI Guidelines, security on the shares of an offshore subsidiary ( “OI Subsidi - ary” ) of an Indian company and its offshore step- down subsidiaries ( “OI SDS” ), as well as on the assets of an Indian entity, its group company and associate companies, can be provided to any lender providing financing to the OI Subsidiary or OI SDS, as long as such lender is from a country where financial commitment is permitted under the OI Guidelines. This was restricted only to
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