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OCTOBER 2013
Legal Focus
85 Investment Banking
Over the last five years since the financial downturn began the banking industry has been under intense scrutiny. Here, Lawyer Monthly takes a look at how the Indian investment banking sector has fared during this time, by speaking to Mr. Anind Thomas, partner at AZB & Partners, a full service law firm in India with offices in New Delhi, Mumbai, Bangalore and Pune. Please introduce yourself, your role and your firm.
I am a partner in the Bangalore office of the firm and advise clients on a wide range of corporate and commercial transactions and issues.
What are the main issues you deal with regarding investment banking in your role?
We act on a number of transactions for bankers to public issue of securities. We also often act for acquirers in takeover situations and in the process, advise bankers on their compliance requirements. Within the firm, we also have practice groups that advise investment bankers on their regulatory compliance, including filing requirements.
What are the main challenges to arise within investment banking-related cases in your experience?
From a regulatory perspective, merchant bankers acting for companies going public face significant liability issues in terms of due diligence and disclosures in offer documents.
counsel bankers on ambiguous regulatory positions, and help mitigate their potential exposure.
regulatory
What are the main regulatory restrictions surrounding investment banking?
Investment banks are organized as companies or LLPs in India and are regulated by the SEBI. Investment banks are required to register themselves with the SEBI under applicable regulations, such as those related to merchant bankers, underwriters, investment advisors, etc.
In the recent
past, the securities markets regulator, Securities and Exchange Board of India (“SEBI”) has issued adverse rulings against and imposed hefty fines on several merchant bankers in respect of disclosures. In the context of takeovers, merchant bankers take significant liability for regulatory compliance of the takeover process. The concern arises as a result of interpretational issues on the takeover regulations, and bankers are often constrained to take conservative positions or rely on precedent for the regulator’s approach to similar situations in the past. Often, these interpretational issues are quite fundamental to the transaction structure itself.
How do you assist clients in overcoming these challenges?
For one, banker mandates in a public offering necessarily come with a parallel due diligence exercise we carry out on the issuer. This provides some comfort to the banker on the contents of the offer document. We are also often required to
SEBI regulations pertaining to merchant bankers stipulate that merchant bankers shall not associate themselves with any business apart from the securities market. Merchant bankers are also prohibited from lead managing any issue and conducting certain other activities where the merchant banker concerned is a promoter or director or associate of the issuer or any person making an offer to sell or purchase securities. Further, merchant bankers are not permitted to deal in securities, either directly or indirectly, on the basis of unpublished price sensitive information. SEBI regulations pertaining to underwriters and investment advisors stipulate that they ought not to derive any other benefit from the issue, either directly or indirectly, apart from the remuneration ordinarily receivable by them. Further, investment advisors which are banks or non-banking financial institutions or body corporates providing distribution and execution services are required to keep their services as investment advisors distinct from such activities.
Have there been any legislative changes recently that have affected this practice area?
The most recent addition to the law governing investment banking in India have been the SEBI regulations pertaining to investment advisors which were notified on January 21, 2013.
Investment
advisors were previously unregulated by the SEBI and the new regulations bring in substantial regulatory oversight to this business. The new regulations provide for amongst other things,
registration requirements, capital adequacy, duties in connection with client risk profiling and investment advice and disclosures to clients.
do you feel the need for any, and if so, what?
The investment advisors regulation appears to adopt a one-size-fits-all approach,
including
investment advisory business carried on in the context of wholly private deals. The SEBI might want to relax some of these regulations, especially in the context of investment advisory business purely on private deals.
What issues should foreigners be aware of in terms of investment banking when looking to invest/start a business in your country?
There are minimum capitalization and upfront funding norms for foreign investments in investment banking activities. The scope of services offered (investment advisory / merchant banking / underwriting) and the stake to be held in the Indian company by the foreigner (up to 51%, 51% - 75% and 75% - 100%) determine the quantum of funding required to be brought in and the ability of the Indian company to engage in other activities, including setting up step down subsidiaries. LM
contact: Mr. anind thomas Partner aZB & PaRtnERS aZB House , 67-4, 4th cross, Lavelle Road , Bangalore 560 001 tel: + 91 80 4240 0500 Fax: + 91 80 2221 3947 anind.thomas@azbpartners.com