Covid-19: Govt steps in to curb opportunistic takeovers of Indian companies

Putting brakes on deep pocketed Chinese companies and its sovereign funds looking to do bargain-hunting in  India during the current COVID-19 times, the Centre has tweaked its FDI policy, requiring Government approval for all FDI proposals coming from neighbouring countries with which India shares its land border.

This would mean that FDI coming into India from any of the seven countries with which India shares its land border— China, Pakistan, Bangladesh, Nepal, Myanmar, Bhutan and Afghanistan— cannot come under the ‘automatic route’ and will be approved on a case-to-case basis.

Not only would fresh FDI investments need Government approval, even share transfers of existing investments into beneficial ownership for firms in those seven Countries would henceforth require Indian Government’s prior approval.

It is not that Government is shutting the door for Chinese or other neighbours’ investments Into India, but only bringing them under its lens so as to curb opportunistic takeovers/ acquisitions of Indian companies, say economy watchers.

This latest move comes on the heels of capital market regulator SEBI reviewing foreign portfolio investments (FPI) from Chinese funds over possible takeover concerns. SEBI moved after some controversy was raised over China’s central bank buying a minority stake ( less than 1 per cent) in HDFC, a large Indian mortgage lender.

This latest move by the Modi Government on clamping down on Chinese investments is being widely hailed across political parties and by economy watchers as “prudent and proactive” step in these trying COVID-19 times.

Reacting to the move, Congress leader Rahul Gandhi tweeted: “ I thank the Government for taking note of my warning and amending the FDI norms to make it mandatory for Government approval in some specific cases”.

Gandhi had few days back tweeted that the massive economic slowdown has weakened many Indian corporates making them attractive targets for takeovers and that the Government must not allow foreign interests to take control of any Indian corporate at this time of national crisis.

Swadesh Jagran  Manch’s National Co-convenor Ashwani Mahajan told BusinessLine that this Government move was much needed under the current circumstances.

“This is the right time for India to do something about it. Chinese investments is a threat, whether it goes into startups or into other Indian entities. Chinese are a threat. This is getting revealed globally. Under the current circumstances, It is a significant move as China might try to acquire Indian companies taking benefit of fall in equity prices”, he said. He highlighted that the change in FDI policy applied to only those countries with which India shares its land border.

Anil Talreja, Partner and leader, Consumer Business, Deloitte India said that the Government decision to restrict automatic investment from companies in neighbouring countries into India entities through a change in FDI policy is a prudent and proactive move.

“ This will ensure that any such acquisitions or takeovers are scanned by the Government before the parties proceed. Such restriction is warranted at least during the time India Inc recovers and stands on its feet again. This shield would also apply to companies in consumer retail and automotive sectors where FDI was under the automatic route”, he said.

Atul Pandey, Partner, Khaitan & Co., pointed out that the latest Government move not only requires prior approval for direct investments by Chinese firms, but also restricts any transfer of investments / future FDI resulting in beneficial ownership falling with Chinese firms.

Vikram Doshi Partner Tax & Regulatory PwC India, said :“COVID19  will impact several businesses, especially ones that are highly leveraged. It will open up takeover opportunities in many sectors. This press note is an attempt to place a check and give the government an opportunity to review such takeovers and investments coming into India from specific jurisdictions.”

Sandeep Jhunjhunwala, Director, Nangia Andersen LLP, said that this just in time move would impact start up growth during the current fiscal, specifically the ones in NBFC sector and digital/technology space given that both acquisition and transfers would now be under Government watchlist.

“Overall, time is right for India to safeguard longer term considerations and protect its technology ecosystem by blocking hostile deals and effectively dealing with looming challenges posed by Chinese tech companies”, he said.