Mergers & Acquisitions Newsletter - January 2012
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Mergers & Acquisitions Newsletter - January 2012

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Attached Newsletter is an attempt to cover monthly issues relevant in the context of transactions - covers SEBI, Companies Act, Income Tax, Stamp duty and other regulatory changes

Attached Newsletter is an attempt to cover monthly issues relevant in the context of transactions - covers SEBI, Companies Act, Income Tax, Stamp duty and other regulatory changes

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Mergers & Acquisitions Newsletter - January 2012 Mergers & Acquisitions Newsletter - January 2012 Presentation Transcript

  • TRANSACTION ADVISORS MissiveVolume X – January 2012
  • Dear Patron Topics Page No Corporate law 1At the outset, I would like to wish all our readers a very Happy New Year. Here we FEMA 3are with the Tenth successive issue of our monthly ‘Missive’. SEBI 6 International Taxation 7During 2011, private equity investments rose to US$ 7.7 billion through 347 deals. Transfer Pricing 7Real estate, automotive and power emerged as the most popular sectors for private Other Regulatory 8equity funding. The year saw $50.9 billion invested through various forms of private Recent Transactions that 8investments like mergers & acquisitions, PE deals and qualified institutional made headlinesplacement.But with macro-economic and policy concerns both globally and in India, 2012 willredefine the players and the playing field going forward. And more so it will be ayear that will decide whether the Indian risk capital industry can win back theconfidence of and a bigger share of funds from Limited Partners (LPs). When the world says ‘Give Up’, …We trust you will enjoy reading this Missive, even while soaking in the contents. We Hope whispers ‘Try it one morewould very much appreciate your feedback which consistently helps us in improving time’and upgrading the contents.Thanks and regards,Akhil BansalEditor, Knowledge Management Team
  • Corporate LawUnlisted Public Companies (Preferential Allotment) Amendment Impact: While there are stringent rules that govern preferential issueRules, 2011 - Key Amendments by listed Public Companies, the rules are not as stringent for an unlisted public company. This move is considered as a step toSome of the important amendments made by the Rules to the Unlisted introduce more transparency in preferential issue by unlisted publicCompanies (Preferential Allotment) Amendment Rules, 2003, include companies and warrant stringent compliance with section 67(3) ofthe following: the Companies Act, 1956. Ω The definition of preferential allotment has been modified to include issue of instruments convertible into shares on a Company Law Settlement Scheme (CLSS) extended up to 15th preferential basis under Section 81(1A) of the Companies Act, January, 2012 1956. Ω Any offer of securities to more that forty-nine persons have Ministry of Corporate Affairs has through its circular dated 15th been excluded from the definition of preferential allotment. December 2011 extended the date for various claims under Company Ω Any offer or invitation of securities not in compliance with Law Settlement Scheme, 2011 further up to 15th January, 2012. All Section 81(1A) read with Section 67(3) of the Companies Act, terms and conditions in earlier circulars to remain same. [General 1956 will be treated as a public offer and the provisions of Circular No. 71/2011, Dated the 15th Dec, 2011] Securities Contracts (Regulation) Act, 1956 and the Securities and Exchange Board of India Act, 1992 shall apply. Impact: The CLSS gives an opportunity for companies to make good Ω All monies payable on subscription of securities will be paid their default in making annual filings (i.e. annual financial through cheque, demand draft or other banking channels and statements, annual returns and secretarial compliance certificates for not by cash. the previous years) with the Registrar of Companies at a discounted Ω Any allotment of securities will be completed within sixty days fee. The CLSS scheme had earlier provided time for filing up to 31 from receipt of application money. If the company is unable to October, 2011 which was extended to 15 December, 2011. allot the securities within sixty days it shall repay the application money within 15 days thereafter, failing which the company will be required to re-pay the application money with interest chargeable at the rate of 12% per annum. Ω No company offering securities shall release any public advertisement or utilise any media, marketing or distribution channels to inform the public about such an offer.[Notification No. F. 2/21/2011-CL V dated 14th December, 2011]1|P ag e
  • MCA extends PAN updation date for DIN holders to 29th February, stakeholders, last date of XBRL filings by a company have been2012 extended up to 31.12.2011 or within 60 days from its due date of filing, whichever is later, without any additional fees. Companies filing afterMCA has further extended the last date for filing DIN-4 by DIN holders expiry of this extended timeline would be charged additional fee as perfor furnishing the PAN and to update PAN details up to 29.02.2012 for their normal 23AC and 23ACA filings. i.e., late fee for such companiesthe Allotment of Director’s Identification Number (DIN) under would be calculated with effect from original due date of filing.Companies Act, 1956. [General Circular No: 70/2011]Impact: Non-provision of PAN details or any mismatch in DIN and Facility for Online Public Search of Trade Marks before incorporationPAN information will be treated as default and such DINs may be of Companydisabled for access of MCA21 System after February 29, 2012. MCA in a joined up service with the Trademark department has provided a facility for searching the trademark database beforeParticipation by shareholders or directors in Annual general meetings applying for Name availability. This can be accessed using the linkthrough electronic mode – Amendment to earlier circular ‘Public Search of Trade Marks’ available on the MCA21 portal before applying for a company name to verify that the name is not subjectedIn June 2011 vide Circular No. 35/2011, dated 6-6-2011, MCA had to any trademark or pending for trademark registration.made video conferencing facility in respect of shareholders meetingsmandatory for all listed companies from the year 2012-13. Now, the Impact: This is viewed by many as one of the various measures ofsame has been made optional. MCA to provide enhanced services to its stakeholders.Further, in case of e-voting in general meetings the Ministry ofCorporate Affairs authorized only NSDL & CDSL as agencies for Companies (Accounting Standards) Amendment Rules, 2011 –providing and supervising electronic platforms for electronic voting. Amendment in date of Applicability of Accounting Standard (AS) 11Now any agency can provide electronic platform for e-voting subject to relating to ‘The Effects of Changes in Foreign Exchange Rates’obtaining certificate from STQC. [General Circular No. 72/2011, dated27-12-2011] The sunset date for transitional provisions to AS 11, which allow deferment/capitalization of exchange differences arising on long-term monetary items has been extended till 31 March 2020. The otherLate Fees for XBRL returns filed after 31.12.2011 to be calculated amendment deals with the manner in which a company may opt tofrom original due date of filing defer/ capitalize these exchange difference on long-term monetary items. [Notification F. No. 17/133/2008-CL.V Date- 29th December,A select class of companies have to file their financial statements for 2011]financial year 2010-11 using XBRL. Owing to requests from2|P ag e
  • FEMARBI delegates Compounding Powers under FEMA to its Regional FDI in India – Issue of equity shares under the FDI scheme allowedOffices under the Government routeAs a customer service measure and for operational convenience, RBI Vide this circular the A.P. (DIR Series) Circular No. 74 dated June 30,has decided to delegate powers to the Regional Offices of the Reserve 2011, RBI allowed issue of equity shares/ preference shares under theBank of India to compound certain contraventions of FEMA 1999. The Government route by conversion of import of capital goods/contraventions include: (i) delay in reporting of inward remittance, (ii) machineries/equipments (including second-hand machineries) and pre-delay in filing of form FC-GPR after allotment of shares and (iii) delay in operative/pre-incorporation expenses (including payments of rent,issue of shares beyond 180 days. The powers delegated are: etc.), subject to terms and conditions stated therein, stands amended. Amendment in conditions are: Amount of Contraventions Regional Offices Contravention A.P.(DIR Series) Bhopal, Circular No. 74 Earlier condition Revised condition Delay in reporting of Bhubaneshwar, dated June 30, inward remittance Chandigarh, Guwahati, 11 and delay in filing of form Jaipur, Jammu, All such conversions of Applications complete in FC-GPR after allotment of Kanpur, Kochi, Patna Below Rupees shares and Panaji One Crore only import payables for all respects, for capital goods into FDI conversions of import Delay in reporting of should be completed payables for capital goods inward remittance, delay Ahmedabad, within 180 days from the into FDI being made within in filing of form FC-GPR Bangalore, Chennai, date of shipment of 180 days from the date of after allotment of shares Hyderabad, Kolkata, Para 3 (I) (d) goods. shipment of goods. and delay in issue of Mumbai and New Without any The capitalization should The applications, complete shares beyond 180 days Delhi limit be completed within the in all respects, for stipulated period of 180 capitalisation being made[A.P. (DIR Series) Circular No. 57 dated December 13, 2011] days permitted for within the period of 180 retention of advance days from the date ofImpact: The subject liberalisation is likely to streamline and expedite against equity under the incorporation of thethe process for Compounding of Contraventions. The formats Para 3 (II) (d) extant FDI policy. company.prescribed for the details and documents will help in uniformity andreducing subsequent correspondences. As clarified by the Circular, [RBI/2011-12/295 A. P. (DIR Series) Circular No.55, Dated- Decemberthe cases falling outside the above liberalisation would continue to 09, 2011]be submitted to the Reserve Bank, Central Office - CEFA, Mumbai.3|P ag e
  • Foreign investment in Pharmaceuticals sector – Amendment to the Micro Finance Institutions (MFIs) allowed to raise ECBsFDI Scheme Considering the specific needs of the microfinance sector, the ReserveThe Reserve Bank of India notified new rules doing away with Bank of India has, subject to certain conditions, allowed microfinanceautomatic approval for foreign direct investment (FDI) in existing institutions to raise External Commercial Borrowing (ECB) up to USD 10pharmaceutical companies. Tightening the norms, the government had million during a financial year. As eligibility criteria, MFIs should have ain November 2011 done away with automatic approval of FDI in the satisfactory borrowing relationship for at least 3 years with a scheduledexisting pharmaceutical companies. Now, FDI, up to 100 per cent, commercial bank authorized to deal in foreign exchange.would be permitted for Brownfield investment (i.e. investments inexisting companies), in the pharmaceutical sector, under the It has also been decided that Non-Government Organisations (NGOs)Government approval route. engaged in microfinance activities can avail of ECB up to USD 10 million or equivalent per financial year under the automatic route as againstUnder the new rules, for any merger or acquisition, the overseas the present limit of USD 5 million or equivalent per financial year.investor will have to seek permission from the Foreign InvestmentPromotion Board (FIPB). After six months, it will be the monopoly Companies registered under Section 25 of the Companies Act andwatchdog Competition Commission of India (CCI) which will vet such engaged in micro finance will be permitted to avail of ECBs even fromdeals. individuals.For the new investment, 100 percent FDI will be allowed under the Impact: Now, NBFC-MFIs will be permitted to avail of ECBs fromautomatic route, under which investors only inform the Reserve Bank multilateral institutions, regional financial institutions, internationalabout the inflows and no specific government nod is required. banks, foreign equity holders and overseas organizations. ECB funds should be routed through normal banking channels.Impact : The decision follows directions from Prime MinisterManmohan Singh, who along with his senior Cabinet colleagues haddeliberated on 10th October over concerns arising out of severalacquisitions of domestic pharmaceutical companies by overseasfirms. Concerns have been raised over the impact of a spate ofacquisitions of homegrown firms by multi-national companies. Therecent acquisitions include Ranbaxy Laboratories buy out by DaiichiSankyo of Japan, Shanta Biotech by Sanofi Aventis of France andPiramal Health Care by Abbott Laboratories of the US.4|P ag e
  • External Commercial Borrowings (ECB) denominated in Indian Rupees Banks stakes in non-financial entities capped at 10%(INR) – RBI allows hedging facilities for Non-resident entities The Reserve Bank of India (RBI) has capped commercial banksVide A.P. (Dir Series) Circular No. 27 dated September 23, 2011, investments in non-financial companies at 10 per cent to ensure they do not engage in activities barred by the Banking Regulation Act. Equity i. “eligible borrowers” have been permitted to avail of ECBs investment would be subject to a limit of 10 per cent of the companys designated in INR from foreign equity holders under the capital, or 10 per cent of the banks capital and reserves, whichever automatic/ approval route, as the case may be, as per the was less extant ECB guidelines. ii. NGOs engaged in microfinance activities have been permitted RBI removes cap on mobile banking transactions to avail of ECBs designated in INR, under the automatic route, from overseas organisations and individuals as per the extant The Reserve Bank of India has removed the cap of Rs 50,000 (US$ ECB guidelines. 948.49) per day per transaction through mobile banking. The volume and value of mobile banking transactions are also showing an uptrend,In order to facilitate the same, it has been decided to allow non- according to RBI.residents to hedge their currency risk in respect of ECBs denominatedin Indian Rupees, with AD Category I banks in India, as per the detailsgiven in the circular. [RBI/2011-12/326 A. P. (DIR Series) Circular No.63December 29, 2011]Rates on non-resident deposits freedTo improve inflow of foreign currency, the Reserve Bank of India (RBI)has recently deregulated the interest rates that banks would pay onnon-resident external rupee (NRE) deposits and non-resident ordinary(NRO) accounts5|P ag e
  • SEBI Impact: The toll-free helpline facilitates self-help mechanism which could be more useful for investor.Notification of the Securities and Exchange Board of India (KYCRegistration Agency) Regulations, 2011 Public Issue of Debt Securities – SEBI prohibits payment of incentivesSEBI had earlier issued guidelines for a uniform KYC process to befollowed by the intermediaries while opening accounts for investors in SEBI had banned payment of incentives by a person connected with athe securities market. Now, SEBI had notified the Securities and public issue of debt securities to potential investors to bid in public saleExchange Board of India (KYC Registration Agency) Regulations, 2011 of bonds as it considers the practice leads to an ‘unfair advantage’ to a(the KRA Regulations) which provide for centralisation of the KYC select few and raises the cost to issuer. However, the regulatorrecords in the securities market. clarified that this won’t apply to fees or commission for services rendered in relation to the issue. [Circular No. IMD/DF/22/2011, DatedAs per the KRA Regulations an intermediary shall perform the initial 26-12-2011]KYC check of its clients and upload the details on the system of a KYCRegistration Agency (KRA). When the client approaches another Impact: This circular has been issued to protect the interests ofintermediary, the intermediary can verify and download the clients investors in securities and to promote the development of, and todetails from the system of the KRA. The KRA Regulations also specify regulate, the securities market. Some brokers/ distributors werethe nature of entities which are eligible to apply for registration as a passing on part of their brokerage or commission to the finalKRA. investors for subscription to such public issue of debt, giving an unfair advantage to some investors adding to the cost of issuance for theImpact: SEBI has, by its circular dated 23 December 2011, provided company.further guidelines to be followed by the intermediaries and KRAs foreffective implementation of the KRA Regulations. The KRA systemshall be applicable for all new client accounts opened from 1 Jan 2012SEBI to launch toll-free helplineMarket regulator SEBI would launch a toll-free helpline as part ofeducating investors on the securities market. With the launch ofhelpline, an investor can ask any question regarding the securitiesmarket which will be answered.6|P ag e
  • International Taxation § If borrowed amount not used to earn exempt Income, no disallowance can be made U/s. 14A [ACIT Vs. M/s Reliance § Gains arising on sale of shares of foreign company by Non Land Pvt. Ltd. (ITAT Mumbai)] Resident (NR) to NR taxable in India if the foreign co only held Indian assets – AAR [In Re Groupe Industrial Marcel Dassault] § Payments received by a non-resident for Value Added Services (VAS) is partly treated as ‘Royalty’ and partly as ‘Fees for Technical Services’ under India-UK tax treaty [De Beers UK Limited Vs. DCIT (ITAT Mumbai)] § Sale of Software without granting right to duplicate, amounts to sale of copyrighted article and not the transfer of copyright and therefore not taxable as ‘Royalty’ [Novel Inc. Vs. DDIT (Intl. taxation)] Transfer pricing § Advance Ruling Application cannot be accepted if question raised in the application is already pending before any income- § TPO cannot take cognisance suo moto of any international tax authority [In Re Nuclear Power Corporation of India Ltd. transaction for adjustment in ALP [CIT Vs. Amadeus India Pvt (AAR)] Ltd (Delhi HC)] § Delhi HC upheld employee head count method for allocating § In the absence of valid comparable data furnished by the cost towards STP unit for the purpose of computing benefit assessee, the use of comparables comparable controlled under Section 10A of the Income-tax Act,1961 [CIT v. EHPT transactions for the purposes of benchmarking controlled India P. Ltd. (Delhi High Court)] transactions is permissible [Bayer Material Science Private Limited v. ACIT (ITAT Mumbai)] § Non-Compete Fees paid for acquisition of business is Capital Expenditure – [Pitney Bowes India Pvt Ltd vs. CIT (Delhi High § No functions, assets and risks analysis is required before AY Court) ] 2002-03 for determination of profits attributable to dependent agent permanent establishment; no further attribution if § Profits From offshore Supply of Hardware and Software Not dependent agent paid arm’s length commission [DIT Vs. BBC Taxable – [DIT vs. Ericsson AB (Delhi High Court)] Worldwise Ltd. (Delhi HC)]7|P ag e
  • Other Regulatory Recent Transactions that made the HeadlinesLife insurance companies with 10-year in business can go public: IRDA § Balaji Tele to sell education, mobile content biz. § GE finance arm plans to acquire MetLife U.S. retail-depositInsurance regulator IRDA came out with guidelines allowing life businessinsurance companies, which have been in business for over 10 years, to § Hero Eco acquires UK-based Ultra Motorsraise funds from the public through IPOs. § PE Fund hikes stake in Patni Computer: Reports § Cricket Companion acquires CrickZengaIRDA, however, will decide the size of the public issue, it said in a § BT Group puts plans to sell stake in Tech Mahindra on holdnotification. As per the guidelines, promoters of the insurance § Changi Airports plans to acquire 26% stake in GVKs airportscompanies will also be allowed to offload their stake in the business: Reportscompany. IRDA would prescribe “the extent to which promoters shall § Mahindra Satyam plans to merge with Tech Mahindradilute their respective holding, the maximum subscription which could § Apple acquires Israels Anobit for US$500mnbe allotted to any foreign investors”, said the IRDA (Issuance of Capital § Yahoo plans to reduce its 40% stake in Alibaba Groupby Life Insurance Companies) Regulations, 2011. IRDA added that it § Google, KKR to pick up stake in California solar projectswould prescribe a lock-in period for the promoters to prevent them § SAR Group acquires 51% stake in Meridian Mobilesfrom exiting the company. The regulations stipulate that no life § Oswal Group acquires 14.2% stake in NDTVinsurance company should approach market regulator SEBI for IPO § Coromandel Intl acquires 68% stake in Sabero Organicswithout seeking prior approval of the IRDA. § 3i to acquire stake in Blue Interactive Group § Seagate completes acquisition of Samsung hard drive businessImpact: The insurance companies, which will become eligible to come § Saudi Prince Alwaleed bin Talal buys stake in Twitterout with the initial public offerings (IPOs), include ICICI Prudential § ABB to acquire Newave for CHF 170mnLife, HDFC Standard Life and SBI Life. After the insurance sector § DLF plans to sell hotel unit to Square Four Housing: Reportsopened up in 2000, only 23 private companies have entered the life § Reliance Infra to sell stake in power transmission biz: Reportsinsurance business. While few companies would immediately § Natixis Global acquires 25% stake in IDFC Asset Managementbecome eligible for IPOs, the remaining would have to wait for § Redington arm to acquire 25.97% stake in Redington Intlcompletion of 10 years of operations. Holdings § JSW Energy acquires additional 31.53% stake in South African Coal Mining: Reports § Electrotherm to sell its Ductile Iron Pipes business to Saint- Gobain8|P ag e
  • ©Copyright AMinds Advisors Private Limited , All rights reserved AMinds Advisors Private Limited specializes in the fields of Mergers & Acquisition, Valuations, Due Diligence, Pre-fund raising Structuring, Financial Re-structuring, Regulatory, Private Equity and other funding opportunities Our guiding philosophy is “To carry out every professional assignment effectively and efficiently, while upholding the virtues of independence and integrity, without compromising on the creativity and quality of work, so as to provide utmost satisfaction to our clients ” For any professional advice regarding alerts in this newsletter, we welcome your queries A-371, Defence Colony, New Delhi –110024 Tel: +91-11-4980-0000 Fax: 91-11-4980-0029 Email: akhil@spnagrath.com www.amindsadvisors.com TRANSACTION ADVISORSThis publication is intended as a service to clients and associates and to provide them with details of the important Transaction updates. It has been preparedfor the general guidance on matters of interest only, and does not constitute professional advise. No person shall act upon the information contained in thispublication without obtaining specific professional advise. Due care has been taken while compiling the information , however, no representation (express orimplied) is given as to the accuracy or completeness of the information contained in this publication