1. Market
1.1 Major Lender-Side Players
Guidelines issued by the Reserve Bank of India (RBI) restrict an Indian bank’s ability to finance the acquisition of equity shares. Generally, a promoter’s contribution towards equity cannot be funded by a bank, and banks cannot finance the acquisition of equity shares other than in exceptional cases. Therefore, financing for a domestic acquisition is generally procured from non-banking financial companies (NBFCs) or by the issuance of non-convertible debentures (NCDs) by the acquirer, which can be subscribed to by foreign portfolio investors (FPIs), mutual funds and alternate investment funds (AIFs).
NBFCs are registered with the RBI and so far enjoy a more relaxed regulatory framework than banks. International banks often lend through their offices outside India to borrowers outside India for acquisitions in India, or they lend to Indian borrowers for Indian acquisitions through the FPI route (discussed in 1.2 Corporates and LBOs and 3.1 Senior Loans).
Please click here to read the full publication by Aashit Shah, Utsav Johri, Nakul Sonejee, and Sahil Unadkat published in Chambers & Partners.
Aashit chairs the Finance Practice at JSA. He specialises in banking & finance, debt restructuring and insolvency, mergers & acquisitions, private equity and investment funds.