PE/VC investments hit 10-year high at $3.1 bn in May

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PE, Venture Capital flows up 155% in May to $ 3 billion; SoftBank – Paytm deal tops

Private equity and venture capital (PE/VC) investments have recorded the highest monthly investments in the past 10 years at $3.1 billion in May 2017. For the third consecutive month in a year, the investment flow crossed the $2-billion mark.

 

The financial services sector topped the table on account of the $1.4-billion investment by Softbank in Paytm. This deal accounted 46 per cent of aggregate deal value for the month.

 

According to Ernst & Young (EY) data, the month recorded a 264 per cent increase in terms of value and 23 per cent in volume over May 2016. PE/VCs have invested $3,064 million across 55 deal in May this year as against $843 million across 45 deals in May 2016.

 

There were five deals of more than $100 million aggregating to $2.3 billion, accounting for 75 per cent of the aggregate deal value in May 2017.

 

Another important deal during the month was the $500-million investment by Canada Pension Plan Investment Board (CPPIB) in Indospace (a real estate platform for industrial and logistics parks) for a majority stake, thus taking the investments by Canadian pension funds in 2017 close to $2 billion.

 

Mayank Rastogi, partner and leader for PE, EY said that Indian PE/VC market has significantly matured over time. Five to seven years ago, the classic growth capital was the only meaningful capital pool available with limitations such as investment horizon and return expectations, and could not have suited some specific situations.

 

There are a variety of capital pools available ranging from angel/VC to buyout funds, family offices, pensions and sovereigns, corporate funds, debt funds, sector-focused funds providing solutions that address specific needs. This is one of the key drivers for continuing buoyancy in the PE/VC investments in India despite slow growth capital investing.

 

Financial services ($1.6 billion across 11 deals) emerged as the most active sector on account of the Paytm-Softbank deal, the largest deal in the financial services sector till date. The real estate sector bagged four deals worth $709 million, followed by e-commerce sector’s six deals worth $211 million in terms of activity.

 

May 2017 recorded $1 billion in exits and was the second consecutive month with more than $1 billion in exits.

 

The strong buyout trend established over the past two years continued into 2017 with $2 billion invested across 18 deals till date.

 

Between January and May, there was a significant increase of over 60 per cent compared to 2016 and over 100 per cent compared to 2015, both, in terms of value and volume.

 

Debt deals recorded the biggest monthly volume since 2014 with $377 million recorded across 12 deals.

 

Given the buoyancy in the public markets, open market deals emerged as the preferred mode of exit, accounting for 36 per cent of exits by value and 50 per cent by volume, similar to the trend seen in the previous month.

 

Till date, open market exits have accounted for 49 per cent of the total value of exits in 2017 compared to 25 per cent for the whole of 2016. May 2017 recorded $90 million in fund raise, a decline of 82 per cent and 76 per cent as compared to May 2016 and April 2017 respectively. The plans for fund raise announced during the month stood at $908 million.
There was one PE-backed initial public offering (IPO) in May 2017 (S  Chand, a publishing company, primarily in the education space), which saw Everstone exiting a 13.9 per cent stake for $48 million. Till May 2017, PE-backed IPO tally stands at four compared to eight during the same period in 2016.

 

Financial services emerged as the leading sector with exits worth $466 million across six deals followed by the healthcare sector with exits worth $260 million across three deals.

 

Source: http://www.business-standard.com/article/companies/pe-vc-investments-hit-10-year-high-at-3-1-bn-in-may-117061300599_1.html

SEBI plans stricter norms for Independent Directors

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Markets watchdog Securities and Exchange Board of India (SEBI) plans to overhaul the regulatory framework for corporate governance, including appointment and removal of independent directors, people familiar with the matter said.

Besides, a high level panel is looking at corporate governance issues such as those pertaining to related party transactions, auditing and effectiveness of board evaluation practices, the people added.

Against the backdrop of recent instances of boardroom battles involving large corporates, the SEBI is looking to revamp the norms and the matter is expected to be discussed at its board meeting later this month.

Strengthening corporate governance practice is a focus area for the regulator, with SEBI chairman Ajay Tyagi recently saying, “independent directors are not independent”.

The regulator is keen on stricter norms for independent directors, including with respect to their appointment, removal and larger responsibility as part of a company’s board, the people said.

Currently, an independent director can be removed by way of an ordinary resolution — which requires the approval of at least 50 percent shareholders of a particular company.

However, when it comes to re-appointment of independent directors, the firm concerned has to move a special resolution under which nod from 75 percent or more shareholders is required.

According to sources, SEBI wants to make it special resolution mandatory for removal of an independent director as such a provision will reduce the arbitrariness of promoters in deciding upon the ouster of such directors.

Besides, stringent disclosure requirements for independent directors, including at the time of their appointments, are being looked at, sources said.

Corporate governance issues will be among the slew of developments that are to be discussed during the SEBI board meeting scheduled for June 21.

 

 

 

 

Earlier this month, the watchdog set up a 21-member committee under the chairmanship of veteran banker Uday Kotak to suggest ways to further improve corporate governance standards of listed companies.

The panel will make recommendations on ensuring independence in spirit of independent directors and their active participation in functioning of the company.

Besides, measures to address issues faced by investors on participation in general meetings and ways for improving effectiveness of board evaluation practices will be suggested by the committee.

Apart from Kotak, who is the chairman of Kotak Mahindra Bank, other members include HDFC CEO Keki Mistry, Wipro chief strategic officer Rishad Premji, L&T Whole Time Director R Shankar Raman and BSE CEO Ashishkumar Chauhan.

In April, Tyagi had said there were too many lacunae with respect to the concept of independent directors with many having “no commitment to any cause”.

“I must admit I have no solutions on what should be done but it will be anyone’s case that existing system has lot of lacunae,” he had said.

Some independent directors are appointed at the mercy of promoters “(with) no prescribed qualifications or procedures, favouritism, (many are from) closed clubs (such as) only those people being in all boards, no commitment to any cause – Ajay Tyagi, Chairman, SEBI

 

 

 

 

Earlier this year, the regulator came out with detailed corporate governance norms for listed companies that provide for stricter disclosures and protection of investor rights, including equitable treatment for minority and foreign shareholders.

The new rules, which would be effective from October 1, require companies to get shareholders’ approval for related party transactions, establish whistle blower mechanism, elaborate disclosures on pay packages and have at least one woman director on their boards.

Source: https://www.bloombergquint.com/law-and-policy/2017/06/12/market-regulator-sebi-plans-stricter-norms-for-independent-directors

RBI examining relaxing Bad Loan Classification Limit beyond 90 days for SMEs

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The Reserve Bank of India (RBI) is looking into a request to extend the classification period for non-performing assets (NPAs) to help small and medium enterprises (SMEs).

“Some people have made representation to the finance ministry of raising the NPA classification period beyond existing 90 days. This issue is under consideration. It is being examined by the RBI,” Minister of State for Finance Arjun Ram Meghwal told newswire PTI.

 

Summary
  • RBI looking at request to raise the NPA classification period beyond the current level.
  • Currently, an account turns into NPA or bad loan if it is not serviced for 90 days.
  • In case of small businesses and SMEs, payments come usually late.

Currently, an account turns into a non-performing asset (NPA) or bad loan if it is not serviced for 90 days.In case of small businesses and SMEs, payments come usually late. Once they miss the 90-day period and fall in the NPA category, their credit line is cut.

In the absence of vibrant factoring or trade receivable market, small businesses and SMEs face the issue of timely credit availability. Meghwal also said that there is a need to strengthen loan restructuring mechanism in an effort to tackle inflation.

Loan restructuring is reviewed by the RBI from time to time as part of its effort to fight the mounting NPAs in the banking system.

Most recently, the minister said, the government brought in an ordinance giving wide-ranging legislative powers to the Reserve Bank to fight NPAs.

The ordinance authorises RBI to issue directions to any bank to initiate insolvency resolution process in the event of a default under the provisions of the Insolvency and Bankruptcy Code (IBC), 2016.

As per some estimates, banks are sitting on unrecognised stressed loans worth Rs 7.7 lakh crore in corporate and SME sectors and expect around 35 per cent of them to slip into the NPA category in the next 12-18 months.

There is a likelihood of Rs 2.6 lakh crore of corporate and SME loans, which are 3.2 per cent of total bank credit to be recognised as stressed loans by 2019.

Stressed loans include restructured assets that carry the risk of turning into NPAs.

Source: https://www.bloombergquint.com/law-and-policy/2017/06/13/rbi-examining-relaxing-bad-loan-classification-limit-beyond-90-days-for-smes

Central Board of Direct Taxes cuts profit margin for safe harbour rules

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Safe harbour rules are defined as circumstances under which the income-tax authorities accept the transfer pricing declared by the assessee.

Given the lukewarm response to the safe harbour mechanism for transfer pricing, Central Board of Direct Taxes (CBDT) on Thursday cut the operating profit margin for information technology-enabled services, knowledge process outsourcing services (KPOs) and research and development (R&D) related to software and generic pharmaceutical drugs companies.

The new rules will apply to transactions of up to Rs 200 crore. Safe harbour rules, a dispute-avoidance mechanism, are defined as circumstances under which the income-tax authorities accept the transfer pricing declared by the assessee. The rule provides the minimum operating profit margin in relation to operating expenses that a taxpayer is expected to earn for certain categories of international transactions. The same is acceptable to the income tax authorities as arm’s length price (ALP). The rules are applicable for transactions between group companies based in different countries so that a fair price or ALP is arrived at by the tax authorities. The rules have come into effect from April 1 this year and will continue to remain in force for two successive years up to assessment year 2019-2020, the board said in a statement

For software development services, safe harbour margins have been reduced to a peak rate of 18% from 22% in the previous regime. Similarly, for KPOs, a graded structure of three different rates of 24%, 21% and 18% has been provided, based on employee cost to operating cost ratio, replacing the single rate of 25% earlier. For the third category of R&D services, the margins have been reduced to 24% from 30% and 29%, respectively, earlier. “The lukewarm response to the earlier safe habour scheme was on account of the high rates. Thus, taxpayers opted for unilateral APA process instead. The revised scheme has been designed to attract small to medium business, especially in the IT/ITeS segment, so as to give them a viable alternative to APA regime, which is both time consuming and expensive. The rates for IT/ITeS segment are more or less in line with the APAs being settled and hence the safe harbour scheme, this time, should get a positive response,” Arun Chhabra, director, Grant Thornton Advisory, said.

Assessees eligible under the present safe harbour regime up to AY 2017-18 shall also have the right to choose the safe harbour option most beneficial to them, the board said. It added that a new category of transactions being “Receipt of Low Value-Adding Intra-Group Services” has been introduced. “The revised safe harbour rules are a welcome step towards making safe harbour a viable alternate dispute resolution mechanism. Key highlights are: Reduction of margins for service units, introduction of safe harbour rate for low-valued services (in line with BEPS recommendation) and well-thought scheme for knowledge process outsourcing companies. Overall, it’s a welcome step towards strengthening the safe harbour option for small and mid size companies,” Kunj Vaidya, leader transfer pricing, Price Waterhouse & Co, said.

Source: http://www.financialexpress.com/economy/central-board-of-direct-taxes-cuts-profit-margin-for-safe-harbour-rules/708984/

Foreign fund inflows hit a record high

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Foreign fund inflows hit a record high. So far this year, India has seen an inflow of nearly Rs 1.25 lakh crore.

The Indian rupee has been one of the best performing currencies among the emerging markets since the beginning of 2017, thanks to robust macroeconomic factors and attractive domestic bond yields. As a result, foreign fund inflows have hit a record.

 

So far this year, India has seen an inflow of nearly Rs 1.25 lakh crore, including Rs 73,200 crore in bonds, against an outflow of Rs 25,500 crore, a year ago. This is higher than foreign fund inflows in the first half of any previous calendar year, even as only the first week of June has got over so far. Given the present economic scenario, rupee is expected to sustain these levels and remain range bound.

 

India’s current account deficit has consistently improved over the years — from 4.8% of GDP in 2012-13 to expected 0.9 per cent in 2016-17, helped by weak oil prices, which constitute as much as 40-50 per cent of India’s imports.

 

With brent crude oil prices continuing to remain weak, down more than 8 per cent in the past two weeks and 1 per cent year-on-year, and the Reserve Bank of India keeping benchmark interest rate unchanged in its Wednesday policy meeting, the rupee is likely to continue to trade at the current levels vis-à-vis the US dollar in the short to medium term.

Source: http://economictimes.indiatimes.com/articleshow/59046239.cms