Credit rating agencies have come under fire on account of their role in the recent global financial crisis arising out of the repackaging of subprime mortgage debts. This has resulted in a call for tighter regulation of rating agencies. But, this revelation in Financial Times is startling: “Moody’s awarded incorrect triple-A ratings to billions of dollars worth of a type of complex debt product...
Taxation on Sale of Shares in a Foreign Holding Company
Often, divestments by foreign owners of Indian companies are effected through a sale of the stake outside India. More specifically, where foreign companies hold shares in Indian companies through intermediate offshore investment companies, they can effect a divestment by merely selling off shares of the offshore holding companies. This does not in any way result in a transfer of shares of the...
Legal Hurdles to Private Equity Investment
Although the flow of foreign private equity into India has been quite steady, there continue to be several ambiguities in the legal regime relating to private equity investment. Through interviews with experts, CNBC -TV18 identifies some of the issues. These include the following: 1. Governance rights: When private equity investors acquire rights in listed companies (such as veto rights on key...
Taxation on Slump Sales
A ‘slump sale’ is one of the methods available to give effect to a transfer of a division or undertaking of a company to another company. Under this method, all the assets and liabilities of (or relatable to) the undertaking are transferred for a ‘lump sum’ consideration without assigning values to the individual assets and liabilities of that undertaking. Unlike certain other types of merger and...
Training Directors
I had earlier posted about the Chartered Director test prescribed by the Institute of Directors in London, which is a qualifying examination for directors on corporate boards. In response, one our readers from Australia, Susie Reece Jones, has been kind enough to provide us with some details about the situation in Australia in this regard. In Australia, there is almost a de facto pre-requisite...
SEBI Eases Payment Norms in Public Offerings
On May 13, 2008, SEBI created a new method of payment or earmarking of funds for subscription to securities in a public offering. The press release states: “Easing of payment process in public / rights issue: The Board approved, in principle, the concept of marking lien on bank account as an alternative mode of payment in public / rights issues. The concept will enable the application money to...
FIIs and Offshore Instruments: Another SEBI Order Set Aside
Readers may recollect that the Securities Appellate Tribunal (SAT) in 2005 overturned the order of SEBI prohibiting UBS, its affiliates and agents from issuing offshore derivative instruments (ODIs) with underlying Indian securities for a period of one year (on account of UBS’ failure to provide infromation about investors to whom it had issued such ODIs). The SAT found that the SEBI (Foreign...
Regulating Hedge Funds
I have uploaded an abstract of a working paper titled Analysing India’s Approach to Hedge Fund Regulation on SSRN, which is reproduced below: “Hedge funds tend to employ aggressive investment strategies, and they highly leverage their funds. While hedge funds infuse liquidity into the financial markets and enhance market efficiency, they also engage in complex financial transactions that...
Miscellaneous: Commodities futures, FDI, Exchange-traded funds
The following are some key developments in the corporate sector over the last couple of days that are worth noting: 1. Commodities FuturesWe had earlier discussed on this blog the preliminary findings of the Expert Committee under the chairmanship of Dr. Abhijit Sen, which failed to find a clear causation between commodity futures and the price rise in agricultural commodities. However, the...
An Examination for Directors
A few weeks ago, we carried a post by Pramod Rao discussing the implications of recent changes to Clause 49 of the listing agreement, the key ones being strengthening the role of the independent directors on boards of Indian listed companies. Although relegated only to a non-mandatory provision, one of the changes states that a “company may ensure that the person who is being appointed as an...
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