One more CCI hurdle for Private Equity firms?

Private Equity firms will have to jump through one more hoop when they invest in Indian firms

According to the Competition Commission of India (CCI), chairman, Ashok Chawla now the firms will need CCI approval while making multiple investments in a sector, even if the transactions don't breach the prescribed thresholds.

Chawla has a very clear mantra for companies to follow when it comes to investing in other companies - it's better to ask for permission, than to apologies.

He says, I would suggest the enterprises concerned is it is better to err on the side of caution than to have the competition commission visit you with some kind of penalty for gun jumping.

It is a practice which some deal-makers have already begun following. In august this year, for instance, Kotak Mahindra Bank filed with the CCI to acquire a 15 percent non-controlling interest in MCX Stock Exchange. However, this was not strictly necessary, since the Competition Act exempts a transaction from filing requirements if the acquisition is less than 25 percent, there is no acquisition of control, and the transaction is purely an investment or is in the ordinary course of business.

But Chawla insists investors should get CCI clearance if the investment is in a sector they are already invested into.

"What if a person makes strategic investment in three or four companies in the same sector? Will that enterprise making that investment be allowed the liberty of not notifying the transaction and not seeking prior approval because that strategic investment may be below 25 percent but that strategic investment of 15-20-24 percent in three or four companies in the same line of business could materially alter the competitive landscape," says Chawla.

However, PE firms are not impressed. They say this attitude could hurt the inflow of private equity money into corporate India, simply because it means one more regulatory hurdle to get past.

According to Rahul Bhasin, managing partner, Baring Private Equity it is very obvious to people in our industry whether something is going to change the competitive dynamics and when it's meaningful and when it's not. "If I were to buy 9.9% stakes across 10 auto companies, I wouldn't feel the need to go to the regulator and ask for permission. But if I am the single largest shareholder in one company and I held 24.9 percent, and I was again the single largest shareholder in another company and I bought 24.9 percent in the same sector, it would be incumbent upon me to go to the CCI," he adds.

The other area of concern is confidentiality. The private equity industry is keen to use the pre-merger consultation process that the regulator has put in place but the possibility of the information leaking has the industry worried. If the regulator can assure confidentiality, the pre-merger talks can give clarity to private equity if they need to file for approval or not.