There’s so much talk about overseas fundraising, especially in the context of new era tech IPOs. Whether or not they should be listed in India or overseas is a whole other matter but only in regards to overseas fundraising what can the budget do to make things easier on field ?
You put your finger on the problem when you talk about the fact that there is some reconsideration in this regard. The thing is, after Nykaa and Zomato’s listing, I’m told that the need to consider overseas listing isn’t necessarily true. Many companies are planning to return to India. But having said that, when it comes to my own business, for example, we still think it’s extremely important.
When Sebi first released the overseas registration guidelines, I was extremely excited. In our portfolio, we have a few assets that we believe would definitely be much more valuable outside of the country. It’s NCEs, biosimilars and the like where we think the appreciation would be much greater. A lot has been done and of course the company law has also been changed, but it has not yet been notified.
Sebi has also been working on a framework for this purpose and of course both should be notified. There are also key changes in corporate law, (2:02) FEMA, income tax law, substantial stock acquisition, KYC-related requirements, anti-money requirements and something the government certainly needs to work on. So there is a lot of work to do.
Specifically on the Companies Act, the non-applicability of prospectus and attribution regulations for issuances outside India is to be made. It is necessary to allow the maintenance of the registration of shareholders outside the country. In the case of FEMA, for example, provisions allowing Indian companies to register outside the country and issue shares to residents outside India are needed.
The retention of foreign exchange proceeds abroad is also necessary. When we talk about capital gains we must have exemptions for transfer of shares between residents outside India for companies listed in foreign jurisdictions and of course the non-applicability of fair market value considerations for shares to a person residing outside. So all this needs to be considered before it becomes a practice in India for the future. But I am sure the government is taking notice of all this and it will be a matter of time before this is possible.
Do you think that foreign mergers should be exempt in the hands of shareholders with regard to the tax part?
This is a situation that many pharmaceutical companies would face, as we have many operating subsidiaries in various parts of the globe, ranging from America to Latin America to Europe. If we really want to grow, mergers and acquisitions are obviously a big opportunity and for that to happen, we’ll have to put those exemptions in place. For example, if any of my subsidiaries in America or for that matter in any other part of the globe were to be merged with another company there, I would be in a situation where I would have to pay taxes in India because that this is not an exempt merger. So this is an extremely important step from my point of view as well.
Would you say the government should reduce agreement compliance and this is just the way to go to merge and acquire companies overseas?
Before answering this question, can I also address another point. Regarding companies in India, last year there was an amendment to the deductibility of goodwill. Goodwill is inevitable in any merger. You’ve done acquisitions in India before once you’ve done that because it’s basically the difference between the amount you paid and the fair value of those assets. It was allowed some time ago, but the law of 2021 canceled it.
I think if you really want to encourage mergers and acquisitions and companies to get bigger, it’s important that goodwill be tax deductible and that’s a hugely important step in the right direction if that happens. It’s not just in America or advanced countries, it’s also in developing markets like Brazil, etc., where goodwill is allowed as a deductible expense. I don’t think India would miss anything if you didn’t.
Would you like to add anything?
This type of rule exists in America where if you have an 80% equity stake in a company even in America itself then potentially a person could consolidate as a group and have the right to offset a company’s losses in profits of another. It would be a very good thing for India to emulate as well.