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EUROPE AND INDIA

Ajay Sethi

Ajay Sethi

Director

Corporate Catalyst India www.cci. in

p y


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India Evolving

The M&A Story

Indian Regulatory Environment

About Cor orate Catal st India


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INDIA EVOLVING


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~

Chan eChan e fromfrom thethe da sda s beforebefore thethe 19911991 reformsreforms

PLENTY OF CAPITAL. Financial markets have diversified, nowcater to corporate needs. All well managed

Companies can attract PORTFOLIO MANAGEMENT. At least thebigger companies can raise capital abroad

AVAILABILITY OF LATEST EQUIPMENT. It is now easily availablefrom imports and domestic production

brought in from abroad

PURSUING MARKETS ACROSS THE WORLD : They are setting upsu s ar es n po en a mar e s


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~

EasyEasy availabilityavailability of of fundsfunds hashas changedchanged corporatecorporate

A boom in the stock market

A rise in mergers and acquisitions

A rise in acquisitions abroad

A decline in joint ventures


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LiquidityLiquidity hashas causedcaused aa stockstock marketmarket boom,boom,

anan a rac ea rac e por o opor o o nves mennves men romrom a roaa roa

500 2000

300

400

illio

n

1000

1500

Nif

ty

100

200Rs

500S&

2000 2001 2002 2003 2004 2005

Foreign portfolio investment S&P Nifty


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TheThe sumssums involvedinvolved inin mergersmergers andand acquisitionsacquisitions

aveave s yroc e es yroc e e

1200 1000

600

800

1000

mb

er

600

800

billion

0

200

400N

0

200

400Rs

2002 2003 2004 2005

Mergers Acquisitions Amounts involved


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Indian companies have been buying businessesIndian companies have been buying businesses

abroadabroad

80

40

50

60

cqu

isition

10

20

30

Numberof

0

2001 2002 2003 2004 2005


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TheThe largestlargest numbernumber of of acquisitionsacquisitions areare inin Information technology: Firms invest their huge profits inmarket acquisitions

Drugs: Indian firms are particularly cheap producers of

pharmaceuticals

Auto ancillaries: Companies access technology throughacquisitions

Steel: Indian companies are integrating vertically acrossborders


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India Evolving ~India Evolving ~Inbound InvestmentsInbound Investments

An OverviewAn Overview

Inflows

S.No Country USD Million %1 Mauritius 17,987,25 41.45

. . . , . .

3 U.K. 3,835.37 8.75

4 Netherlands 2,623.23 5.99, . .

6 Germany 1,667.51 3.65

7 Singapore 1,594.67 3.65

. .9 South Korea 822.67 1.71

10 Switzerland 687.67 1.51

Amount of Inflows since August 1991 to February 2007


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India Evolving ~ Inbound Investments

AtAt thethe samesame time,time, IndiaIndia isis emergingemerging asas aa marketmarket inin

ere recte

presencepresence Most obvious for information technology: all major

international companies have set up operations in India

Increasingly true of mass markets: cement, steel, cars, two-

wheelers etc

It will become true of more goods and services as the Indianmarket grows

Meanwhile, India remains the worlds largest source of cheap,educated manpower


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Lotteries, gambling and betting

n us r es ou o oun s

Atomic energy

(but India likely to buy half a dozen nuclear plants in the

near future)

Retail shops-

Real Estate

Agriculture


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India Evolving ~India Evolving ~ Inbound InvestmentsInbound Investments Permission from existing Joint Venture PartnerPermission from existing Joint Venture Partner

If you had a joint venture or technology agreement before,and if the joint venture company is still alive

- before you can set up a business to compete with thatcompany in India, you would need the consent of your oldartner or of the Government

[Press Note 1 of 2005 series]


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In some industries you need governmentIn some industries you need governmentpermissionpermission

Government Permission

Finance and insurance

Media

Communications

Energy

Mining Transport

Arms and military supplied

Explosives and hazardous chemicals


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India Evolving ~ Inbound Investments -ew n us r es reserve or sma rms

If you want to take an equity stake over24% you will need government permission


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INVESTMENT STRATEGY


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Investment StrateInvestment Strate Why India ?Why India ?

It has become easier now

There is a growing market in companies

There are thousands of firms in many industries

Family-owned enterprises often run into management crises,

look for saviors

State governments compete to attract enterprises


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Investment Strate or Joint Venture?

I fI f ouou stillst il l referrefer ointoint venturesventures

The top 100 Indian firms have more choice today and aremore difficult to attract

But there are thousands of smaller companies, mostly family-managed, which are still available

u pu n p ace a managemen s ruc ure w c g ves you aneffective voice


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Investment Strategyn oun nves men s n ry p ons

Foreign Supplier

Foreign Investor

nves men

Unincorporated Entity Incorporated Entity Agent

s r u on

Company

Liaison Office Project Office Branch Office Importer C&F Franchise

Joint VentureWholly Owned Subsidiary


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Investment StrategyInbound Investments Entry Options

Unincorporate Entity

Companies exploring business opportunitiesin India

Branch Office

Research & development Companies

Project Office

Companies involved in one time turnkey or


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Investment Strategy

Forms of Corporate

Public Private

Minimum Capital (approx.) EURO 8,600 EURO 1,700

Members Minimum

Maximum

7 2

NA 50

Minimum Directors 3 2

Listing on stock exchange Permissible Not permissible

Re ortin re uirements Hi h Low


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Investment StrateInvestment Strate Ke Polic IssuesKe Polic Issues

Analysis of Sectoral Caps - Investment Allowed Under

Automatic or Approval Route

Negative List - Gambling & Betting, Lottery business,

Atomic Energy, Retail trading (except Single Brand product

retailing)

Press Note 1 of 2005 - Special Approval on Investment

when existing collaboration with an Indian partner


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THE M&A STORY


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The M&A StoryThe M&A Story

Key indicators for increase in mergers and acquisitions in India

Mergers & AcquisitionsMergers & Acquisitions Why the rush?Why the rush?

Indian growth story: Indian GDP at 9%

Availability of low cost funds to finance acquisitions

Tax benefits available Sound exit strategies available in light of big market capitalization

Mindset transformation: Indian corporates reaping the benefits oflobalization.

Relaxed FDI norms


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The M&A Story ~The M&A Story ~ModesModes

M&A

Amalgamation Acquisitions

StockPurchase

AssetPurchase

De-mergerMerger

Itemized saleSlump Sale


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Investment by foreign investor subject to sectoral caps

Applicability of Press Note 1

omp ance w regu a ons ssue y ecur es xc ange

Board of India (SEBI) in case of listed company

Transaction by way of de-merger / slump sale / acquisition ofshares or assets

Transfer price as per guidelines issued by Reserve Bank of


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The M&A Stor ~The M&A Stor ~ Takeover CodesTakeover Codes

When acquiring more than 5% to disclose his shareholding or

,

guidelines issued by Securities & Exchange Board of India

voting rights to the company & the stock exchange.

When acquiring 15% or more to make public announcement

Acquirers, holding 55% percent but less than 75% shares orvoting rights, can acquire additional shares or voting rights

.


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The M&A Story ~Un erstan ing your In ian partner

Indian partner looks at a business horizon of 3-5 years

to measure the returns on investment

in negotiations, basically, a top-down management approach

You should discuss in detail management control issues viz.appointment to t e oar o irectors an c airman o oar ,appointment of CEO, MD and CFO, issues arising from futurechange of control, non-compete, etc.


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ENVIRONMENT


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Indian Regulatory Environment ~Indian Regulatory Environment ~IPR cases and concrete stepsIPR cases and concrete steps

Infringement oftrade mark for using deceptively similar word

VOLWO and VOLVO

Permanent injunction was granted for using the trademarkYahoo

or ra ng o acco pro uc s

Infringement of copyright Publishing of head-notes, short-notes,

editorial notes and copy edited judgments from a journal.

Re-mixing of music disallowed unless permitted by original artist.

Counterfeit markets regularly raided to identify and destroy

pirate so tware, oo s, etc

Customs Duty systematically reduced to make grey market an

unviable option


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Indian Regulatory Environment ~Indian Regulatory Environment ~La ourLa our LawLaw -- Key IssuesKey Issues

1 Restriction on hours worked by employees 48 hours per week

2 Number of Indian employees which triggers

employer obligation to provide employees stateinsurance

10

employer obligation under provident fundscheme, bonus act

4 Number of years of continuous service which 5 years

5 Minimum bonus to be paid to an employeedrawing a basic wage of Rs 3,500 or less

8.33%

factories7 In case of retrenchment of closure, number of

employees which triggers employer obligation toseek rior overnment a roval

100

8 On retrenchment / lay off / closure Compensation ispayable to employee


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Indian Regulatory Environment ~Indian Regulatory Environment ~Tax System in IndiaTax System in India

Federal Taxes

Income Tax

Customs Duty

Service Tax

Wealth Tax

State Level Taxes

Sales Tax, VAT, Lease and Works Contract Tax

ro ess on ax

District/ Municipality Level Taxes


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Indian Regulatory Environment ~Indian Regulatory Environment ~Income TaxIncome Tax

Tax Levied on Basis of Residential Status

Indian Incorporated Companies Taxed on Worldwide Income Rates of Tax (%) Maximum Marginal Rate

Tax Payee Resident Non ResidentCorporate 33.99 42.23

Individual 33.99 33.99

ax o on oya es an ee or ec n ca erv ces


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Indian Regulatory Environment ~Indian Regulatory Environment ~Corporate TaxCorporate Tax

Relief from Double Taxation throu h Tax Treaties

Tax Holiday for New Units in Backward Area

(Specific Industries) To Avoid Maintenance of DetailedExpense Records

5 years Holiday in a Block of first 10 years for units inSpecial Economic Zone (SEZ)

Advance Rulings on Transactions Possible


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Indian Regulatory Environment ~Indian Regulatory Environment ~er gn can axeser gn can axes

Excise Duty

On manufacture of goods. Peak rate at 16%

Basic duty + additional excise duty + special excise duty Credit allowed of duty paid to limit the cascading effect of duty

Customs Duty

On the import of goods into India. Peak rate at 10%

Basic duty + Additional custom duty u y raw ac on goo s re-expor e . gn can concess ons

Sales Tax - On sale of movable goods. Rates vary for different states.Substituted by Value Added Tax (VAT) effective April 2005

erv ce ax - ev e a on en e axa e serv ces

Research & Development Cess- On import of technology intoIndia at 5% on payments


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THANK YOUTHANK YOU

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