We have a lot of experiences of that nature where litigation and other issues have come up in M&A even after due diligence: Seshagiri Rao, joint managing director and group chief financial officer (CFO), JSW Steel Ltd
We have a lot of experiences of that nature where litigation and other issues have come up in M&A even after due diligence: Seshagiri Rao, joint managing director and group chief financial officer (CFO), JSW Steel Ltd

‘IBC may be a solution for M&A transactions’

  • Under IBC, JSW Group is involved in five transactions and we have completed two transactions so far, said Seshagiri Rao
  • Rao also raised concerns over the treatment of arbitration awards (in foreign locations), which could be either during CIRP or prior to it

The Insolvency and Bankruptcy Code, 2016, (IBC) has emerged as an attractive route for merger and acquisition (M&A) deals in India for companies eyeing inorganic growth opportunities, said Seshagiri Rao, joint managing director and group chief financial officer (CFO), JSW Steel Ltd.

“Under IBC, JSW Group is involved in five transactions and we have completed two transactions so far. Even though it is taking time, I think this may be the solution in the future for M&A transactions or acquisitions where a lot of comfort can come in to the acquirer in terms of future litigations," said Rao at the Mint India Investment Summit and Awards 2020 in Mumbai.

While acknowledging that India offers a lot of opportunities for companies to consolidate and grow their businesses organically and inorganically, Rao flagged key challenges, such as an acquirer facing multiple litigations despite performing rigorous due diligence of the asset.

“We have a lot of experiences of that nature where litigation and other issues have come up in M&A even after due diligence. So, the route that is available today where you can clean up the issues that are involved (in M&A deals) is IBC," he added.

Despite the experience, Rao is hopeful that in future, the cases may get expedited, adding the IBC has brought clarity in a lot of issues over the last three years. “But the Supreme Court has to give its views, particularly on the supremacy of Prevention of Money Laundering Act, 2002, or PMLA, over IBC. The case is now in the Supreme Court, hopefully, that will get resolved."

Rao also raised concerns over the treatment of arbitration awards (in foreign locations), which could be either during the corporate insolvency resolution process (CIRP) or prior to it. “Whether the judgements that are coming in Indian courts under IBC, will it be respected overseas—that is one issue that we need to understand."

While there are several attractive inorganic growth opportunities in the Indian market today, companies looking at acquisitions also face a challenge in financing these transactions, said Rao. “On the domestic side, there are very few banks today that are willing to finance acquisitions on account of regulatory issues or on account of large exposures framework. If it is to be financed from overseas, then the sources and mode of financing are very limited. There are several conditions to comply with in order to raise financing from overseas. This is on the debt side".

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