CROSSBORDER MERGERS& ACQUISITIONS

Presentedby

AshutoshChaturvedi
ExecutiveDirector

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Agenda
Perspective OutboundStructuring Funding Acquisition&Restructuring ForeignExchangeRegulations

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Perspective ScenarioandOverview
M&ADeals*
No Particulars
No.

2009
Value (USDbn) No.

2008
Value (USDbn) No.

2007
Value (USDbn)

I.

DomesticDeals

142 61 64 125 267

5.8 3.11 1.12 4.23 10.03 17.5

172 86 196 282 454

5.21 12.55 13.19 25.74 30.95 67.3

321 112 243 355 676

2.85 15.5 32.76 48.26 51.11 134.8

II. (a) Inbound (b) Outbound CrossBorder(a+b) III. TotalM&As(I+II) IV. AverageOutbound Deals(US$MN)
*Source:TheFinancialExpress

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Perspective
ZylogSystemacquires Brainhunterin CanadaforCandian$ 35Mn ShreeRenukaSugarsLtd acquiresaBrazilianentity forUSD240Mn
MSSLacquireda globalCompany for26.5MnEuro s

Maricoacquires ColgatePalmolives Code10brandin Malaysia

HindustanDorr OliveracquiresUK basedCompany BancoProducts acquiresaDutch companyfor 17.7MnEuro

ition reacquis y ApolloT nch keinFre 0.2 ofsta USD1 panyfor com Mn

KiriDyesand ChemicalsLtd. acquiresGerman multinationalforRs 1,300crore

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Outbound Structuring

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Imperativesofefficienttaxstructure
OverallBusiness Strategy Verticals /Manpower Management/IP Overalltax efficiencyofthe Group Fundraising

Enhancescontrol andaddresses dilution

Holding Structure

Consolidationof offshoreresultsat desiredlevel

Capturetaxcredit

Efficient Promoters holdingstructure Taxefficient repatriationof dividendbymitigating withholdingtaxes

Flexibilityoftax efficiententry& exitfroma businessventure

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OutboundInvestmentStructures
Direct Investment
IndianCo

SPVStructure

Two Tier SPVStructure

IndianCo

IndianCo

India Overseas
SPV SPV1 SPV2

Target

Target

Target

Taxinefficient

Taxefficientand Flexibilityinfund movement

Optimalstructure fromtaxand fundingperspective

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SPVConsiderations
Corporatetaxrate Taxationofdividend/interest Withholdingtaxondividend/interest Capitalgaintaxontransferof investments/shareholding ThinCaprules Easeofaccesstodebtandequitycapital BlacklistedCountries Treatynetwork Costofsettingupandadministration Othernontaxconsiderationslike politicalstability,bankingfacilityetc.
UAE Luxembourg TaxHavens BVI/Cayman Cyprus Singapore Netherlands Mauritius

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Funding

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ConsiderationsforFundRaising
Leveragingand flexibilityinraising fundsinIndiaand overseaslevels

Appropriate Jurisdictions

ListinginIndiaand overseas

Capital Structure
MaximiseInterest deduction
Facilitatesfamily reorganisationand succession

Nil/lower withholdingon interest Taxefficient instrument

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LoanStructures
OptionI DebtinIndia

LoanatIndiaLevel
IndianCompany

LoanatSPVLevel
IndianCompany

LoanatTarget Country
IndianCompany

Loan India Outside India

SPV1 Loan SPV2

SPV1

SPV1

SPV2

SPV2

Loan

Target Interestcost deductibleinIndia

Target

HoldCo Target

Taxinefficient Interestdeduction againstTargets

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MaximiseInterestDeduction
OptionI DebtinIndia
Loan IndianCompany Equity/ RPS/Loan SPV1 Equity SPV2 LowEquity/ Maximumloan

InterestcostdeductibleinIndia InterestcostdeductibleatTargetcountry levelthroughtaxconsolidationorMerger IndianTPregulationstobeconsideredin caseofRPS/Loaninstrumentusedby IndianCompany

HoldCo Target

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FundingInstruments
InvestingoutsideIndia
Parameters Returnon income Taxabilityin India Dividend Equity PreferenceShares Dividend/CapitalGgains Interest Loan

Dividendtaxableat33.99% Dividendtaxableat33.99% Capitalgainstaxableat 33.99%/22.66% Noarmslengthpricing conditions ArmslengthPricing

Interesttaxable33.99%

TP regulations Repayment

Armslengthpricing

UsuallybywayofBuyback Dependingupontheterms ofsharessubjecttohost oftheinstrument countryregulations Dividendnottax deductible Dividendnottaxdeductible

Aspertermsofloan agreement

TaxBenefit

Interestistaxdeductible subjecttothincaprules

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CrossBorderFinancing
DelhiTribunalinPerotSystemsTSI(India)LimitedandMumbai TribunalinVVFLimitedheldthat:
InterestfreeloantoforeignsubsidiaryisnotinaccordancewithTransfer Pricing SuchtransactionhasaresultofshiftingprofitsfromIndiatocompany situatedintaxhavencountrieswhichwouldbringdownthetaxburdenof thegroup. Whethersuchloanisconsideredasequityintherecipientcountryornotis notrelevant RBIsapprovaldoesnotputasealofapprovalontruecharacterof transactionfromTPperspective

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Acquisition& Restructuring

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AcquisitionStrategy
Acquisition of

Shares

Assets

AtSPVlevelor OperatingCompany level?

TobeheldfromIndia orfromoverseas jurisdiction?

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AcquisitionStrategy
Shares Assets

Purchaseofentire business Costofacquisition notreflectedin Targetfinancials UsuallynoVAT implications Consideration directlyreceived byowner

Purchaseof identifiedAssets Enhanced depreciationbenefit tothePurchaser VATimplications mayarise Consideration payabletoTarget

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AcquisitionStructure
IndianCo IndianCo

India Overseas

Target

TargetisaFrench Company,withassetsin variousregions

Asset 1

Asset 2

Asset 3

PostAcquisition restructuringrequired

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WhyRestructuring?
IndianListedCo IndianListedCo

India Overseas

ValueofInternational Businessnotcaptured underoneoffshore Companyforlisting overseas

SPV1

SPV2

FlexibilityofIndianand/or OverseasListing
Overseas Company1 Overseas Company2

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WhyRestructuring?
IndianParent IndianParent

India Overseas

Existingstructurenot flexibleforexpansionor futureacquisitions

SPV

Overseas Company

Target

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WhyRestructuring?
IndianListedCo IndianListedCo

India Overseas

SPV

Listing/Fundraisingof Businessverticals separately

Overseas Company1

Overseas Company1

Overseas Company1

Power

Oil& Gas

EPC

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WhyRestructuring?
IndianParent IndianParent

India Overseas

UseofSPVforinvestment inJV

Joint Venture

JVPartner

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InvestmentinUS
LimitationofBenefit(LOB)provisionsinmostoftheUSTreaties RestrictstheflexibilityofstructuringinvestmentsintoUS Treatybenefitstocompanieswithoutactivetradeorbusinessnotavailable DTAAwithHungaryalsoamendedrecentlytoincludeLOBClause Consolidationbenefits Groupconsolidtionpermittedallowingtaxshelter

oninterestcost
NothincaprulesbutEarningStrippingregulationsrestrictingtheinterest

deduction
DetailedControlledForeignCorporation(CFC)regulations Interestdeductiontogroupcompaniespermittedonlyintheyear of

payment
Stateleveltaxes SharesownedinaUSSPVsubjecttoFIRPTArules realestatecompanies

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InvestmentinEurope
EUSavingDirectivesondividend,interest,royalty NotaxationinsourcecountryifpaymenttoaEUmembercountry, subjectto prescribedconditions

Domesticantiabuseregulationsinthesourcecountrytobeconsidered

beforeallowingthebenefitofEUdirectives
Netherlands/Luxembourgarecommonlyusedjurisdictions

ECSwitzerlandagreement similarbenefitsastoEUcountry

CommonCurrency automaticforeignexchangefluctuationhedging

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Foreign Exchange Regulations

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ForeignExchangeRegulations

InvestmentinWOS/JVabroadpermittedunderautomaticroute Valueofinvestmentnottoexceed400%ofnetworth SettingupStepdowncompanies/SPVallowed Foreignentitynottobeengagedinrealestateorbankingbusiness Loan equityparticipationinWOS/JVrequired Divestmentsubjecttorestrictionsincludingoneyearlockinperiodand nowriteoff InvestmentinexistingWOS/JV valuationrequirements
Ifinvestment>US$5mn CategoryIMerchantbanker Inallothercases CA/CPA
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SomeHistoricalChangestoODIRegulations

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Guarantees
OptionI DebtinIndia GuaranteecanbeissuedonbehalfofWOS/JVonlyifthereis equityparticipationbyIndianparty directorindirect? CanbegivenbyPromoterCompany,GroupCompany,Sister concernorAssociatecompany GuaranteecanbeCorporateorPersonal,PrimaryorCollateral NoGuaranteecanbeopenended amountandperiodof guaranteetobespecifiedupfront Limitedtoaoverallcapof400%ofnetworth IsPerformanceguaranteecovered?

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Issues

SomeHistoricalChangestoODIRegulations

SettingupMultipleSPV Loan/GuaranteedirectlytoStepdownsubsidiaries hinderthe flexibilityoffundingarrangements Exitinvolvingwriteoff Remittancetowardsshareapplication CantwoSPVsetbyIndianpartyforacquisition

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PracticalProblems

SomeHistoricalChangestoODIRegulations
AtcompanyinwhichinvestmentismadebyIndiancompany CouldbeSPV ValuationoftheultimateTargetcompany

Valuationguidelinestobeseenatwhichlevel?

FurtherremittanceoffundsnotavailableuntilreceiptofUIN planning ofremittances AllfundingtofollowtheSPVroute nodirectfunding Reportingrequirementsforstepdownsubsidiariesoranyalterationin shareholding

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Accounting

SomeHistoricalChangestoODIRegulations

ConsolidationofoverseasfinancialsinthebooksofIndianCompany Acquisitionofalossmakingentity impacttheconsolidatedbalance sheet Postacquisitionimpairment MitigationthroughSchemeof arrangement IFRSfromApril1,2011 howdoesitimpacttheexistingconsolidated financialstatement?

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Control&Management
ControlandManagementofWOS/JVtobeoutsideIndia Control&managementnotdefined meansdefactocontrol andnotdaytodaycontrol AllBoardmeetingsshouldbeoutsideIndia Evenpartcontrol&managementissituatedoutsideIndia,then foreigncompanyisnotaresidentofIndia

DelhiTribunalincaseofRadhaRaniHoldings

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DirectTaxCode
GeneralAntiavoidanceRuleprovidessweepingdiscretionary powerstotheCommissionertotreatanarrangement impermissible,ifmainpurposeofthearrangementoranypart ofitistoobtainataxbenefitand inamannernotbonafideforbusinesspurpose;or lackscommercialsubstance. ForeigncompanymayberesidentofIndiaifpartcontroland managementissituatedinIndiaduringanytimeoftheyear Crossbordermergersmaynotbeallowed

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Thankyou

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