india: a dynamic and fast changing business...

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India: A Dynamic and Fast Changing Business Environment

Swiss M&A and Private Equity Forum 2015 (Zurich)

22 October 2015

Delano Furtado

Modi-fied India

� May 2014: New Government led by PM Narendra Modi

� Reforms, Development and Good Governance Agenda

� Historic mandate: first majority party in 30 years

� Commitment to address traditional roadblocks to foreigninvestments

60

Growth after the Modi Government

61

759 787

975

781

496

680

2009 2010 2011 2012 2013 2014

Number of FDI Projects 52.8

41.5

47.5

31.6

18.9

25

2009 2010 2011 2012 2013 2014

FDI capital (US$b)

178

210

254

150

104

145

2009 2010 2011 2012 2013 2014

Jobs created by FDI (Thousand)

+37%+32%

+39%

Source: EY Survey- September 2015

Entry into India: FDI

Entry into India

Modes

� Liaison Office, Project Office, Branch Office

� Joint Venture, Wholly Owned Subsidiary, LLPs

� Share acquisition v. Asset purchase v. Court approved de-merger

� Share Swap permitted (Government approval)

Forms of Investment

� Foreign Direct Investment (FDI)

� Foreign Portfolio Investment (FPI)

� Foreign Venture Capital Investment (FVCI)

63

Modes of Acquisition

64

Share Acquisition Business Transfer: Itemized Asset Sale/Slump Sale

Court approved Demerger

Investor

TargetPromoter 100% ownership

Key Considerations:

� Historical liabilities are also taken over.

� Less transaction cost.

Structure:

Investor

New Co.

Offshore

Onshore

TargetBusiness Transfer

Key Considerations:

� Only identified business /assets are acquired.

� High transaction cost.

Investor

New Co.

Offshore

Onshore

TargetCourt

approved Demerger

Key Considerations:

� Tax benefits.� No disruption to the

licenses/approvals.� Involves court process

and, therefore, is more time consuming (6-8 months).

Structure: Structure:

Share Acquisition

Offshore

Onshore

Foreign Direct Investment

� "Automatic Route" or the "Approval Route“

� 90% of FDI for 2014-15 came through the Automatic Route*

� Prior approval of the Indian Government is required – Defencemanufacturing, broadcasting, aviation, telecom etc.

� Prohibited Sectors –lottery and gambling, atomic energy, tobacco andtobacco products, real estate etc.

� Pricing guidelines – liberalised over time

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*Source: Ministry of Commerce, Government of India

New Opportunities for Investment: Key Sectors

Defence

67

Sectoral Cap Key Conditions

Upto 49% with priorGovernment approval

Above 49% with priorapproval of the CabinetCommittee on Security(CCS)

� Conditions relating to (i) ownership, (ii) control, (iii)board representation, and (iii) appointment of keyofficers

� Above 49% investment – Permitted if FDI likely toresult in access to modern and state of the arttechnology

• Lockheed Martin, Boeing, Pilatus, Airbus

Insurance

68


Automatic upto 26%

Prior Governmentapproval from 26% to49%

49% cumulative limit(includes FDI + FPI + NRI+ FVCI)

� Licensing requirement

� Ownership and control conditions

� Investment cap applicable to Insurance Companies,Insurance Brokers, Third Party Administrators,Surveyors and Loss Assessors and Other InsuranceIntermediaries

• HDFC Standard Life – Standard Life recently receivedapproval to increase it's stake in the JV from 26% to 35%

• Others include Bajaj-Allianz, Max-Bupa, Tata-AIG

Railway Infrastructure

69


Earlier: Prohibited (exceptmass rapid transportsystems)

100% Automatic

� Activities include construction, O&M of:

(i) Suburban corridor projects through the public-private partnership (PPP) route, (ii) high-speed trainprojects, (iii) dedicated freight lines, (iv) rolling stock,(v) railway electrification, (vi) signaling systems, (vii)freight terminals, (viii) passenger terminals (ix)infrastructure in industrial parks pertaining torailways and (x) mass rapid transport system(MRTS)

� Investment in "sensitive areas" requires priorapproval

• Bombardier, Alstom, Siemens

Construction Development

70


100% Automatic � Reduction in minimum built up area and minimumcapitalisation requirement

� Exit permitted after completion of the project or afterdevelopment of trunk infrastructure

� Affordable housing exemption: No minimum built-up andcapitalisation requirement

• Blackstone, Turner International, Emaar Properties

Single Brand Retail Trading

71


Automatic Route upto49%

Prior Governmentapproval from 49% to100%

� Only single brand products permitted - same brandthat is used internationally

� Indian company/Investor not required to be owner ofthe brand, may retail products through a licensingagreement with the brand's owner

� Domestic sourcing requirements for FDI beyond51%

• Victorinox, Swiss Military, Swiss branded foods

Multi Brand Retail Trading

72


Upto 51% with priorGovernment approval

� Minimum amount to be invested: USD 100 million

� USD 50 million to be invested in back-endinfrastructure such as processing, manufacturing,quality control etc.

� Domestic sourcing requirements

� States free to disallow FDI in MBRT

E-commerce - policy arbitrage and 'market placemodel' Flipkart, Amazon, Snapdeal

• Tesco

Pharmaceuticals

73


Greenfield-AutomaticRoute upto 100%

Brownfield- ApprovalRoute upto 100%

� Non-compete clause requirements

� FDI upto 100% under the Automatic Route formanufacturing medical devices

• Novartis, Roche, GlaxosmithKline

Sector-wise: FDI from 2000- 2015

74

43,350

24,098

17,575 17,453

13,477 13,33610,588 9,828 8,958 8,680

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

USD million

Swiss Players in the Indian Market

Who are they?

76

How do they operate?

77

Swiss Entity Sector Presence in India

Novartis AG PharmaceuticalsListed company (75% stake)

Roche Pharmaceuticals Wholly owned subsidiary

SGS SA Testing services Wholly owned subsidiary

NestleFood and Nutrition Products

Listed company- (62.76% stake)

Swatch Watches Wholly owned subsidiary

Glencore International

Commodities Wholly owned subsidiary

Suzler PumpsMachinery and equipment

Wholly owned subsidiaries

Schindler Holding Ltd.

Elevators/ Escalators Wholly owned subsidiary

How do they operate?

78

Swiss Entity Sector Presence in India

ABB LtdAutomation and Power Technology

Listed Company – (75% of ABBIndia).

Bata FootwearListed company(52.96% stake)

FarnairSwitzerland AG

Air Transport Services(Approval Route)

Private Company- (74% stake)

Nuance Group AG

Airport Duty-Free Retail (Approval Route)

Private company(Subsidiary)

Lausanne Hospitality SA

Hospitality Training and Consulting Services(Approval Route)

Limited liability partnership

Increasing the Ease of Doing Business: Key Initiatives

� FDI permitted through various instruments including 'warrants’

and 'partly paid' shares

� 'Put' and 'Call' options permitted with conditions

� MSME de-reservation

� Sanctity and enforceability of foreign arbitral awards

� Pricing guildeines liberalized - valuation of shares according to

any internationally accepted methodology

80

Investment related Initiatives

� Delisting made easier for companies

� Timelines for receiving specific regulatory approvals

� Takeover Code 2011 made at par with international standard:tender offer triggered on crossing 25% (earlier 15%) + minimumpublic offer of 26% (earlier 20%)

� Competition Regulations: Target Entity Exemption

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Investment related Initiatives

Manufacturing related Initiatives

'Make in India' - initiative to make India a global'manufacturing hub'

� Recently liberalized foreign investment in: defense,construction development, railway infrastructure andpharmaceutical sectors

� Smart cities – potential avenue for investors

� Validity period of Industrial Licenses – most sectors delicensed

� 'eBiz' - government's online portal for applications of licenses,clearances and registrations

82

� National Solar Mission

� 20,000 MW of grid connected solar power by 2020

� Aimed at reducing cost of solar power, aggressive R&D, and robust manufacturing base for components and products

� National Offshore Wind Policy (2015)

� Development of wind farms upto 200 nautical miles from coastline

� Blocks to be allocated through a competitive bidding process

� Incentives: 10 year income tax holiday, customs duty, service tax and excise duty exemptions

83

Energy related Initiatives

� EOU/STPI

� Delayed implementation of GAAR

� Bona fide offshore transactions looked upon favourably by theCourt

� Goods and Service Tax (GST) regime - expected to be rolledout soon

84

Tax related Initiatives

85

Labour related Initiatives

� Streamlining laws - definition of “wage”

� Consolidate existing 44 labour laws to just 5 - Broadly dealingwith wages, social security, industrial safety and welfare, andindustrial relations

� Increasing threshold for retrenchment of workmen from 100 to300 without Government approval

� Online portal for employers – registrations under differentlegislations, filing of returns etc.

� Social security agreements between India and various countries

� Amendments to corporate laws to improve business confidenceeven in closely held companies

� Audit Committee

� Key Managerial Personnel/Officer In Default

� Independent Directors

� Whistle blower

� Minority protection

� Related Party Transactions defined

� SEBI Clause 49 – for ListCos

� Insider Trading Regulations 2015 – stricter compliance

86

Corporate Governance related Initiatives

� India's increasing intolerance towards corruption

� EOW and SFIO

� Proposed Bankruptcy Code

� CBI investigating high-profile corporate frauds

87

Corporate Governance related Initiatives

88

Infrastructure related Initiatives

� Road Projects awarded by the NHAI

� New Hybrid Annuity model

� Eased exit restrictions for developers

Impact of New Initiatives

With political certainty and better policies, there has been a visible anddramatic shift in investor sentiment.

� 55th rank : World Economic Forum Global Competitiveness Index 2015-16 (lastyear's rank: 71)

� 1st rank : Financial Times's estimated greenfield FDI ranking for 2015 (last year'srank: 5)

� 7.3%: IMF projected growth rate for India

� An increase in FDI by 48% (October-April) compared to the previous year

� Net investments by FIIs increased 7 times over the previous year at USD40.92 billion

� Industrial growth rate increased to 2.7% (October–May) compared to 0.6% inthe previous year

� 85th rank: Transparency International Corruption Perception Index 2015

� 7th rank : Protecting Minority Investors Indicator (World Bank Ease of DoingBusiness Index) 89

India- Swiss Economic Ties

91

USD 3.1 billion : FDI from Switzerland

since 2000

USD 337 million : FDI in FY 2014-15

10th largest Investor in India

USD 8 billion Estimated actual FDI in India from Swiss

companies

Around 250 Swiss companies operating

in India

Approx. 100,000 jobscreated through Swiss

direct investment

Other top investing countries include U.K., Japan, U.S.A, Germany, Singapore, Mauritius etc.

Sources: Ministry of Commerce, Government of IndiaSwitzerland Federal Department of Foreign Affairs

Overview of Swiss Direct Investment in India

Indo-Swiss Bilateral Agreements

� India-Switzerland Double Taxation Avoidance Agreement (DTAA)

� Agreement for the Protection and Promotion of Investments(BIT) - investor-state arbitration mechanism

� Mutual Legal Assistance Treaty in Criminal Matters

� Agreement on Social Security –portability of pensions,elimination of double contribution under labour legislations

� MOU on Financial Dialogue

92

Emerging Landscape for M&A in India : Factors and Opportunities

New Opportunities

94

� Increased M&A activity in newly opened sectors and e-commerce

� Increase in capital expenditure to establish or expand existingmanufacturing and assembly plants in India – BMW, Mercedes-Benz, Audi started to localise production

� "Start-up India": India ranks 3rd among global startupecosystems with more than 4,200 new-age companies

� Access to low cost capital from overseas lenders/foreignshareholder debt

Driving Factors

95

� Key Economic Drivers

� India's Structural Strengths Nearly Unmatched

� World's Youngest Population

� China's Debacle

� English Speaking Population

� Rising Incomes combined with Aspirational Consumerism

� India's Development Inevitable

Trilegal: Our Experience

Trilegal: Our Experience

� Trilegal is one of India's top-tier law firms with offices in four of India's major cities - Mumbai, New Delhi, Bangalore and Hyderabad.

� Best Client Service Award -Chambers Asia-Pacific Awards 2015

� Nominated for Best Law Firm Award - Chambers Asia-Pacific Awards 2015

� Best Domestic Law Firm - IDEX (Ideas Exchange) Legal Awards 2014.

� Our Key Swiss clients

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Thank You

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