Government to bring M&As under RBI, SEBI regulations

The Indian Government may pass regulations to empower the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI) to inspect mergers and acquisitions involving domestic and foreign companies in order to examine whether such deals pose any security threat to the country. All details regarding the source of funding and the structure of the new entity, after merger / acquisition, will be closely scrutinized by the two regulators. In the case of inflow and outflow of funds, the RBI will set a threshold limit. The apex bank and the capital market regulator will examine any investment beyond the threshold limit in the case of listed companies. In addition, sectoral regulators would also examine impact of the M&As for the domestic market.

The investigation will seek to find out whether the formation of the new company, post-merger, will be a threat to national security—both economic and physical. A probe by sectoral regulators will deal with the impact of the merger for the domestic market in terms of monopolistic practices. In the event of a foreign company acquiring an Indian company, the regulator will investigate the antecedents of the company that is acquiring the Indian company and its promoters. Moreover, a detailed investigation of the source of funds, used for financing the acquisition, will also be undertaken.

In the case of an Indian company acquiring a foreign company, the procedures will be much simpler, with the domestic firm required to follow the existing procedures of informing the regulators about the source of funding. Not just the foreign direct investment (FDI), even projects covered under the public-private-partnership (PPP) model will come under security. As a part of this, all PPPs will have a national security exemption clause, which will prevent companies in the consortium to undertake activities, which the government thinks will be against the country’s safety. In case of violations, companies will be removed from the project.

Article in The Financial Express.