05 Jul 2020, Edition - 1818, Sunday
Preventing Opportunistic Takeover of Indian Companies by Global Funds and Investors
April 22, 2020
Business Wire India
“Amidst the COVID-19 pandemic, global funds will hunt for companies, including Indian companies, with a positive balance sheet but a temporary negative cash flow, with the aim to pick up such companies at undervalued price points. The threat definitely exists. Once these companies slip out of Indian hands, it will be impossible to get them back; it is the right move on part of the authorities to protect Indian entrepreneurs and act as an antidote to capital erosion. The massive economic slowdown has weakened many Indian corporates making them attractive targets for takeovers. India Inc. has raised concerns about this, authorities must not allow foreign interests to take control of any Indian corporate at this time of national crisis; and not just from countries that share a border with India. Similar steps are being taken by the European Union as also other countries like Australia. The role of the International Fund/ investor bringing in Foreign Direct Investment (FDI) is that of a financial partner. If we look at the possible scenario of the opportunistic takeover of Indian companies, once these companies are controlled by the global fund/ investor, the strategy of the company will definitely change. We might not see the company take decisions that are positive to India’s national interest as also those of the other existing stake-holders in that company, and we need to take necessary steps to protect Indian companies from being taken over by global funds/ investors.”
The Department for Promotion of Industry and Internal Trade (DPIIT) revised its policy, amending the foreign direct investment (FDI) norms to put a blanket ban on investments through the automatic route by entities from countries that share a border with India. These regulations will prevent takeovers and acquisitions of Indian firms amid the Covid-19 pandemic. The move follows concerns that investment entities from global markets could take over Indian companies at a time when their valuation has taken a massive hit because of the economic crisis triggered by the COVID-19 pandemic.
Dr. Niranjan Hiranandani is President (Nation) NAREDCO as also President, Assocham