MUMBAI, (GNI): Bahram Vakil Parnter AZB & Parnters Suman Saxena WTM Research and Regulation Wing IBBI, Alok Saraf Partner, Mergers & Acquisitions Tax
PwC India, Ajeet Kumar Modi VP, Corporate Finance ACC Limited, Rahul Bhasin
Managing Partner, Baring Private Equity, Harish Chander, Executive Vice President
Edelweiss Financial Services Ltd. during The CII PwC M&A Report on Transactions in the Real Estate Sector was released at the Summit, in Mumbai, – Photo by Sumant Gajinkar
Recent changes in Regulatory Framework will pave way for enhanced M&A activity: Shardul Shroff
CII-PwC M&A Report on Transactions in the Real Estate Sector on latest taxation, regulatory and funding environment released
MUMBAI, (GNI): M K Sharma, Chairman, ICICI Bank Limited highlighted valuation, synergy base, due diligence of core business strategy and culture integration as key factors to successful M&A. He was addressing the Mergers Acquisitions and Restructuring Summit 2017 organized by Confederation of Indian Industry (CII) at Mumbai today. Explaining this in detail while citing live examples from his experience, he suggested valuation of deals keeping in mind the buyers’ perspective. Highlighting the need for overall synergy based acquisitions which are aligned to the core business strategy, he asserted on the need for extensive due-diligence. Focusing on the post acquisitions initiatives, he explained how the entire integration and employee fitment should be the priority to be completed within the first six months.
The CII PwC M&A Report on Transactions in the Real Estate Sector was released at the Summit. The real estate sector is undergoing a major overhaul in India on account of various reforms undertaken by the government. This has given a much needed boost to the sector and transactions have started picking up pace in recent times. However, with the advent of section 50CA, section 56, GAAR, ECB restrictions, etc., the tax and regulatory regime has become complex than ever before.
In the backdrop of this, the CII PwC report covers the various tax and regulatory aspects that need to be considered while entering into transactions in the real estate sector. It thoughtfully covers typical transaction structures and identifies the key tax and regulatory implications that can prove to be dealmakers or deal-breakers. According to the Report, it is estimated that the sector will have a compound annual growth rate (CAGR) of 11.2% (FY 2008-2020) and grow to 180 billion USD by 2020. The relaxation of foreign direct investment (FDI) rules for the real estate sector, opening up of the domestic fund industry to foreign investment, introduction of institutional frameworks like the real estate investment trust (REIT) and infrastructure investment trust are expected to help raise funds to support projects and accelerate growth.
Attached is the report and key highlights out of the CII-PwC Report titled ‘Transactions in the Real Estate sector’.
Key highlights/ insights of the real estate report
· The report provides key insights into tax and regulatory aspects of transactions in the real estate sector
· Structuring joint venture transactions through an LLP is possible, depending on commercial aspects and nature of projects
· Relaxation of FDI conditions have made investments in the construction development sector much easier for foreign investors
· The ambiguity in taxation of JDAs has been laid to rest with clarity on point of taxation in the hands of Individual and HUF landowners
· Co-development agreements being treated as an AOP for taxation purposes continues to stand as a risk
· The Government has given a boost to the real estate sector by providing 100% tax exemption for affordable housing
· Investors are looking at the bulk purchase of properties model for investments in completed projects in a structured manner
· The report provides funding options available for developers or investors in the real estate sector including structured NCD funding
· Mergers and demergers may be used as an effective mode for consolidation of entities
· Introduction of REITs have provided an alternate way of raising funds by listing completed projects
Chairman, CII National Committee on Legal Services and Arbitration Mr Shardul Shroff, Executive Chairman, Shardul Amarchand Mangaldas highlighted that with the Bankruptcy and Insolvency Code coming into effect, India will witness a surge in M&A activity as large number of lucrative assets will be up for sale at a discount and also well within the reach of Indian and foreign buyers. At the same time, the implementation of the GST will increase consolidation in a few sectors such as logistics and warehousing. The telecom sector is another hotspot for M&A this year as several players are battling high competition and low profit margins. The recent exemption provided by the Competition Commission of India from filing requirements within 30 days of the execution of relevant trigger documents will also facilitate M&A, he elaborated.
Delivering the PE/VC Outlook, Mr Gopal Jain, Managing Partner, Gaja Capital & Member, Executive Committee, Indian Private Equity and Venture Capital Association enlightened how international interest being very high in the Indian M&A market, there is need for regulatory streamlining and maintaining the corporate veil while ascertaining personal liability to ensure enhancement in global interest in the country.
Mr Robin Banerjee, Convener, CII Maharashtra Finance & Taxation Panel & Managing Director, Caprihans India Ltd cited examples of successful and unsuccessful M&A while asserting how there is need for complete transparency and fairness in deals.
Mr Dipankar Bandyopadhyay, Partner, Verus Advocates said that the recent M&A activity in India has been driven by robust regulatory regime, stable capital markets, “Make in India” scheme incentives which have heavily contributed to both inbound and outbound investments.
Speaking at the Summit, Ms Rekha Bagry, Partner, Mergers & Acquisitions Tax, PwC India exclaimed how the changing world scenario – shift of political and economic power, tax and regulatory changes makes deal making challenging. Confiding that action will continue as need exist, one will learn to embrace the new order to meet the dynamic surrounding businesses. Countries unite through forums like OECD and G- 20 to protect tax base, she said while claiming we are headed for interesting times.
Mr Alok Saraf, Partner, M&A Tax, PwC India said that the real estate sector holds irrefutable importance for the Indian economy, in terms of employment and contribution to GDP. There have been multifaceted efforts being made to re-engineer the lost confidence and momentum in the sector. The private equity investments in real estate have garnered speed in recent times, reaffirming the fact that green shoots of recovery are visible.
Delivering his address, Mr M P Vijay Kumar, Chief Financial Officer, Sify Technologies Limited said that M&A success was predominantly driven by effectiveness of HR integration in the past. In this digital age, IT Integration effectiveness drives the success and value creation of an M&A. In most M&A, decision making, IT landscape evaluation and ability to integrate is a key consideration driving both valuation and decision making, he explained.
TR Srinivas, Founding Partner, O3 Capital opined that the Indian M&A market has witnessed significant change in last couple of years. From being a largely sellers’ market it is now a fairly balanced market in terms of overseas companies looking to acquire in India to establish or strengthen their India presence and Indian companies looking at overseas assets for Technology, Market access and diversification, he said.
From the perspective of the Indian start-up ecosystem, Padmaja Ruparel, Co- founder & President, Indian Angel Network, expressed India will be seeing more action in the M&A activity in the coming years. The well-funded players in the market would continuously look to sharpen and diversify their capabilities in an ever growing competitive market and acquiring a smaller start-up seems to be the way forward for them. On the other side of the spectrum, this also gives a boost to the investing community as there would be more avenues of exits and the risk taking appetite would surge.
Speakers commended CII for its sustained efforts in facilitating the regulatory environment in the country. The day long Summit deliberated on vital topics including the Regulatory; Taxation; Finance and Technology Regimes; Restructuring for Growth including opportunities under India’s new bankruptcy and insolvency regime; restructuring for market strength: Hiving-off, Reverse mergers, Lateral Consolidation and Strategizing domestic and Outbound M&A in the VUCA world with different markets and different expectations. ENDS