Energy & Infrastructure M&A 2024 Comparisons

The deal space in the FY 2023–2024 in India has witnessed a slowdown compared to the preceding years due to global inflationary trends, valuation mismatch, geopolitical unrest and macroeconomic factors. In the context of the energy sector, the Russia-Ukraine war has led to a marked increase in global crude oil prices and energy costs, threatening energy security thereby, forcing Russian energy customers to focus on alternate suppliers or increased adoption of renewables in their energy mix.

However, the global M&A outlook has been contrasted, in context of India, through steady deal making in certain specific sectors – green energy (solar, wind and green hydrogen), oil and gas, and sustainable mobility in particular. India’s commitment to green energy transition in the COP26 in Glasgow (with a goal of 50% of its energy demands to be met through renewable sources by 2030), ever-increasing energy demands, and infrastructure requirements of a developing economy have led to sector-focused inbound investments of significant deal value.

The government’s continued pro-business regulatory reforms focused towards enhancing ease of doing business, the sector-focused liberalisation of the foreign investment regime, and the introduction of schemes such as the production-linked incentive scheme continues to drive inbound investment decisions and the value chain around these sectors.

Key deals in FY 2023–24:

• GQG Partners’ acquisition of a stake in Adani power for USD1.1 billion;
• NTPC’s acquisition of KSK Mahanadi Power Project for USD603 million; and
• Data Infrastructure Trust’s (an affiliate of Brookfield Asset Management) acquisition of ATC’s India business for USD2.5 billion.

In India, most infrastructure projects are developed through the public private partnership mode under the competitive bidding route which allows only limited foreign participation – either by way of a joint venture or consortium. Each of these sectors are also considerably regulated with most sectors having sectoral regulators. Therefore, entrepreneurs are advised to incorporate in India – particularly, project developers and manufacturers.

After the submission of the incorporation documents to the regulator, it takes about three to four weeks to incorporate a private limited company.

There is no initial capital requirement/minimum paid-up capital to incorporate a private limited company other than the requirement to have a minimum of two shareholders for private limited companies and seven shareholders for public limited companies.

Considering the capital requirement in the energy and infrastructure sectors, entrepreneurs are typically advised to incorporate a private limited company under the Companies Act, 2013 (the “Companies Act”). The requirement of higher debt capital due to the gestation period involved in energy and infrastructure projects also makes these entities preferable for entrepreneurs. Investors prefer this corporate vehicle due to the flexibility it offers from a funding and corporate governance perspective along with the limitation of liability for its shareholders.

In the renewable energy sector, entrepreneurs also structure certain special purpose vehicles (SPV) as a limited liability partnership especially, for captive power projects.

Early-stage financing for energy and infrastructure sectors is largely dependent on the specific sub-sector, since the challenges and the regulatory regime differ across the sub-sectors. Therefore, primary capital can be raised from local investors, promoters of family offices, government-sponsored funds, etc, or a combination of these sources. In more recent times, foreign private equity funds (through their Indian arm) have financed new companies in the energy and infrastructure sectors.

Early-stage financing is typically provided in the form of equity, debt-equity, or convertible instruments – depending on the specific sub-sector and the risks thereof. The documentation in such cases mostly includes the following:

• share subscription agreement – records the terms and conditions of the investment;
• shareholders’ agreement – provides governance and management-related provisions, terms of share transfer and exit;
• employment agreements; and
• articles of the company – amended to include the key provisions in order to avoid any ambiguity regarding the binding provisions under the shareholders’ agreement.

Debt capital is also a critical source of funding, especially for companies formed to execute energy and infrastructure projects. Most concession agreements prescribe a debt-to-equity ratio of 70 (debt) to 30 (equity) and project financing is commonly availed by such companies to fulfil this requirement.

The typical sources of venture capital include venture capital funds (domestic and foreign), corporate venture capital, government initiatives and angel investors.

However, pure play venture capital funding, focused on long-term growth, is not a customary source of raising capital for the energy and infrastructure sectors. Due to the cyclical nature of business, these sectors have been more attractive for private equity and institutional investors (both domestic and foreign). In recent times, sector-focused venture capital has been introduced by certain entities – such as Venture Capital Fund for Energy Efficiency by Bureau of Energy Efficiency, BPCL, has introduced a corporate venture capital arm working towards targeted renewable energy start-ups, Green India Venture Fund, by the venture capital arm of IFCI.

Venture capital documentation has been considerably standardised over the past decade, with well-defined parameters regarding tag- and drag-along rights, anti-dilution, right of first refusal, dispute resolution, etc. While there are no institutional standards, there are market-practice and sector-based principles which guide the documentation along with due diligence findings and regulatory risks.

If start-ups intend to access public capital, they are required to change their corporate form from a private limited company to a public limited company. Start-ups are not typically advised to change their jurisdiction unless this decision is guided by key investors or better valuation considerations. Few companies have chosen the SPAC model for listing in foreign jurisdictions.

Considering foreign exchange laws, complex tax and legal issues and sectoral demands, it is atypical for companies in the energy and infrastructure sectors to change their jurisdiction.

While investors usually leave all options open for an exit including through IPOs, traditionally there has been a preference to exit through secondary sales rather than IPOs (in energy and infrastructure sectors). While this decision is guided by certain key factors – value optimisation of the business, macro market conditions, investor sentiments vis-à-vis the economic factors, etc, the cyclical nature of the business has been a key determinant for the choice of exit through secondary sales. Also, considering the nature of the business of these sectors, not many companies reach the stage of listing unless they are part of a large promoter-driven conglomerate. In recent times, government-backed renewable energy companies are seeking to raise capital through the public markets.

Indian companies are only allowed to list on international exchanges which are approved and recognised by the Ministry of Corporate Affairs, in accordance with the Companies (Listing of Equity Shares in Permissible Jurisdictions) Rules, 2024. Companies mostly list on the Indian stock exchanges due to their familiarity with the regulatory regime which is often designed to the Indian market, as well as compliance and disclosure requirements, relatively attractive valuations and the potential to leverage their domestic reputation. That said, even in case of domestic IPOs, companies do attract significant foreign investors through the qualified institutional buyer route. Few companies have also chosen the SPAC model to list their companies in foreign exchanges.

The firm does not opine on such matters without consulting with the foreign lawyers of the relevant jurisdictions.

While the sale of a company is typically undertaken through bilateral negotiation, over the last decade, auction processes have been firmly established as a preferred process for businesses backed by private equity/venture capital investors or businesses that have steady growth. However, bilateral process for sale continues to be a key feature of the market, especially where a transaction is initiated by a buyer and involves less time and cost.

The Indian market does not typically have VC investors in the energy and infrastructure sectors. However, of late, India is witnessing VC investments in the oil and gas and e-mobility sectors.

A typical transaction structure for the sale of a privately held energy and infrastructure company that has VC investors may include:

• a sale of the entire company or controlling interest for VC investors;
• a partial exit for the founders/promoters; or
• the founders/promoters continuing to hold a reduced stake in the company along with being involved in the operations of the company.

The decision to sell the entire stake or a controlling interest is typically linked to various factors including return on investment timelines, fund lifecycle, ownership structure in the company, and available exit option including an IPO/listing or similar liquidity event contemplated in the near future.

While secondary sale has been common in the energy and infrastructure sectors, considering the recent market trends, energy companies (especially, those in renewables) are seeking the IPO route for fundraising.

Most M&A transactions in the Indian market are generally structured as pure cash deals, especially in transactions involving financial buyers. However, the specific structure can vary based on factors such as the companies concerned, the industry and the strategic goals of the acquisition. A combination of cash and stock, while not prevalent in the Indian market, may be opted for, rather than the sale of the entire company for cash or a stock-for-stock transaction, to allow the sellers to receive immediate liquidity through cash while also retaining an interest in the company through buying shares in the buying entity.

The founders are generally expected to stand behind representations and warranties and indemnities provided under the transaction documents, which includes all liabilities including tax, employee benefits, litigation, and environmental matters. The VC investors in the sector are only expected to represent and warrant clear title to their shareholding in the company and its authority to execute the transaction.

While escrows or holdbacks are not customary in India, parties may, especially private equity funds, structure such transactions for tax liabilities.

Transactions backed by representations and warranties insurance is a relatively new concept in India, and stakeholders are familiarising themselves with the structure especially for larger transactions to provide coverage for losses resulting from breach of representations and warranties. Since it is not customary in transactions, there is a recent trend in obtaining insurance, particularly in sponsor-led deals.

Spin-offs are becoming increasingly customary in India’s energy and infrastructure sector. In the past year, a few companies have demerged their energy business into a separate legal entity including Siemens Limited, Sterlite Power Transmission Limited and GE India Industrial Private Limited.

In India, spin-offs can be undertaken either by way of a demerger through a scheme of arrangement approved by the competent authorities and/or the tribunal or through a contractual arrangement in the form of a business transfer or asset transfer.

Companies engaged in the business of energy and infrastructure often pursue spin-offs to: (i) enhance value creation since independent entities attract more focused investment; (ii) improve operational efficiency; (iii) risk mitigation by managing the overall corporate risk; or (iv) a proposed business structure since spin-offs can also serve as a precursor to potential mergers or acquisitions, creating opportunities for strategic partnerships.

Spin-offs, in India, can potentially be structured as tax-free transactions at both corporate and shareholders’ levels if spin-offs are being undertaken by way of a scheme of arrangement. Business combinations that involve the transfer of capital assets, such as amalgamations and demergers, can be tax-neutral transactions since they are exempted from taxation on capital gains under the Income Tax Act, 1961.

Such spin-offs must meet the following key requirements:

• the entity initiating the spin-off must be a demerging company and the assets and liabilities must be transferred to the resulting company;
• the assets and liabilities of the demerging company must be transferred to the resulting company on a going concern basis;
• the resulting company must issue its shares to the shareholders of the demerged company on a proportionate basis as consideration; and
• the shareholders should retain a substantial interest in the resulting company by holding at least 75% of the value of their interests in the demerging company in the resulting company.

In India, a spin-off immediately followed by a business combination is possible, however, it has to be in compliance with the regulatory framework under the Companies Act and approvals from the Securities and Exchange Board of India (SEBI) and the Competition Commission of India (CCI), if applicable. Key requirements for undertaking a business combination after spin-offs are as follows.

• The boards of directors of the companies must approve the spin-off and the subsequent business combination. Shareholders’ approval is typically required, in case there are significant changes in shareholding patterns or corporate structure.
• An independent fairness opinion must be obtained to ensure that the terms of the business combination are fair to shareholders.
• Detailed schemes of arrangement for both the spin-off and the merger need to be drafted, outlining the terms and conditions, share exchange ratios, and other pertinent details.
• The schemes for spin-offs and business combination must be filed with the National Company Law Tribunal (NCLT) (the quasi-judicial authority for all company law matters) for approval.
• Listed companies must comply with stock exchange regulations regarding disclosures and approvals.

However, in a business combination through contractual arrangement in the form of a business transfer or asset transfer, approvals from regulatory authorities like SEBI or CCI may be necessary.

Spin-off undertaken by way of a scheme of arrangement has been reported to be a time-consuming process and the approval process typically takes six to eight months. However, the timeline for spin-offs, undertaken by way of business transfer or asset transfer agreements, are case specific and typically take two to four months.

The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (the “Takeover Regulations”) govern the acquisition of voting shares or voting rights or control in a listed company.

Any person, with or without holding any shares in a target company, can make an offer to acquire shares of a listed company, subject to minimum offer size of 26%. That said, the promoters or the promoter group typically control the board of listed companies, and it is difficult to successfully implement an open offer in the absence of any agreement with the promoters. From a practical standpoint, the acquisition of shares through execution of share subscription or share purchase agreements with the promoters of the listed company and the open offer process are typically conducted as a simultaneous process. 

In context of the reporting requirements under the Takeover Regulations, if the acquisition in the first instance crosses 5% of the voting shares/voting rights in the listed company, the acquirer is required to make a disclosure of its holding and of the persons acting in concert with such acquirer (PAC), to the stock exchanges and the listed company. An acquirer (along with the PAC) already holding 5% or more of voting shares/voting rights is required to disclose any change in their shareholding exceeding 2% of voting shares/voting rights. These disclosures are required to be made to the stock exchanges within two working days of such acquisition or change.

The Takeover Regulations do not obligate the acquirer acquiring a stake in a listed company to publicly disclose the purpose of the acquisition or the intent regarding the acquisition with respect to the company. However, if the mandatory open offer (MOO) requirement is triggered, as discussed in 6.2 Mandatory Offer, the material portions of the acquisition including the reasons for the acquisitions, the commercial reasoning (long term) and strategic plans are required to be provided in the offer document.

Under the Indian Takeover Regulations, an acquirer (along with PACs) is required to carry out a MOO in the following instances (both direct and indirect).

• If the acquirer (along with PACs) holds less than 25% of the total voting shares/voting rights of a listed company and acquires or agrees to acquire such number of voting shares/voting rights, which results in such acquirer (along with PACs) holding 25% or more of the voting shares/voting rights of the listed company.
• If the acquirer (along with PACs) already holds between 25% and 75% of the total voting shares/voting rights of a listed company and acquires or agrees to acquire such number of voting shares/voting rights, which results in such acquirer (along with PACs) holding 5% or more of the voting shares/voting rights of the listed company, in any financial year.
• Notwithstanding the acquisition of voting shares/voting rights, if any acquirer or its PACs acquire control of a listed company.

Acquisition of a public company is typically structured in either of the two forms:

• share acquisition for cash (either primary or secondary) up to the mandatory takeover thresholds as discussed in 6.2 Mandatory Offer, followed by an open offer; and
• merger through the merger scheme route, typically structured as a share swap requiring an approval from the NCLT.

Under the merger scheme route, a minimum of 75% of the shareholders of the merging entity are required to receive their consideration in the form of shares. In case of a failure to meet this criterion, the transaction leads to tax implications in the hands of the recipient receiving the consideration.

Further, no approval of the shareholders of the listed company is required in case of a share acquisition for cash, however, the merger scheme requires the approval of 75% of shareholders, and an additional minority shareholders’ approval in a few select cases.

Particularly in the context of energy and infrastructure companies, acquisition of public listed companies is also structured as a business transfer wherein the acquirer and the listed company enter into a bilaterally negotiated business transfer agreement – to purchase the listed company’s business or certain identified undertakings. Another structuring option is that of demerger, which involves demerging the business of the listed company in favour of the acquirer in consideration for shares to be issued by the acquirer to the shareholders of the listed company. From a regulatory perspective, the demerger scheme and its process is similar to a merger scheme as discussed above.

Business transfers do not trigger the MOO obligations but require an approval of 75% of shareholders and a separate approval of the minority shareholders. Business transfers are prone to tax implications, and therefore should be structured with caution to ensure the least tax incidence for the parties involved.

As discussed in 6.3 Transaction Structures, the acquisition of a public company is commonly structured as an acquisition-for-cash transaction, and although rare, transactions are in certain instances also structured as a partly stock and partly cash deals.

Minimum Price Requirement

In the context of pricing, other than in specific instances (such as, if acquisitions are undertaken through the exchanges or if the transaction is regulated under the extant foreign exchange laws), pricing is not typically regulated for acquisitions which trigger a MOO.

However, the Takeover Regulations prescribe the minimum price requirement for the price at which an offer in the MOO is to be made. This price is to be determined as the highest of the following parameters:

• the negotiated price per share of the underlying acquisition attracting the MOO;
• the volume-weighted average price paid or payable for acquisitions by the acquirer (and its PACs), during the 52 weeks immediately preceding the date of the public announcement;
• the price paid or payable for any acquisition by the acquirer (and its PACs), during the 26 weeks immediately preceding the date of the public announcement; or
• the volume-weighted average market price of such shares, during the 60 trading days immediately preceding the date of the public announcement, if the listed company’s shares are frequently traded.

In a merger or demerger transaction, the pricing is determined based on the valuation report of the entities involved. In context of business transfer, while the pricing is not per se regulated, the determination of pricing is commonly based on tax implications. 

Deferred Consideration or Contingent Payments

While it is not typical to carry out valuation adjustments through deferred consideration or contingent payments, in certain instances, parties do devise structures to address valuation uncertainties – issuance and subscription of convertible instruments; escrows (share based or cash based) to control deals and effect any future valuation adjustments. Note that under the foreign exchange laws of India, only 25% of the consideration can be paid by the acquirer as deferred consideration to be settled within 18 months from the date of the transfer agreement.

The Takeover Regulations prescribe several common conditions for takeover or tender offers, such as minimum percentage of shares to be acquired (26% of the voting share capital); the minimum offer price and parameters, as discussed in 6.4 Consideration: Minimum Price; the appointment of merchant bankers, etc. There may be certain exemptions in specified instances where the acquisition is between relatives or promoters, etc.

The Takeover Regulations do allow conditional MOOs – these are akin to standard open offers except that if the desired level of shares is not tendered by existing shareholders (a limit which is specified in the tender offer documents), the investor is not obligated to acquire any shares at all under the open offer. A conditional open offer ensures that an acquirer meets its objective from the transaction. However, if the desired level of acceptance has not been met and the acquirer decides not to proceed with the transaction, the underlying acquisition which triggered the MOO is also not allowed to be completed. In the Indian context, conditional offers are an all or nothing commitment for the acquirer.

As discussed in 6.1 Stakebuilding, it is customary to enter into share subscription or share purchase agreements with the promoters/principal shareholders as a parallel process to the open offer. On the other hand, merger and demerger transactions are required to be documented through a scheme of merger/demerger and are required to be approved by the NCLT, along with an implementation agreement which sets out the obligations of the parties in the context of the transaction. Business transfer agreements are documented through a business transfer or asset transfer agreement.

Other than the obligation to constitute a committee of independent directors as discussed in 11.2 Special or Ad Hoc Committees, the target/listed company is typically required to obtain the necessary regulatory approvals as may be required for the deal. The Takeover Code also places certain obligations on the listed company, and such as, the business of the listed company is to be undertaken as usual, consistent with past practice, during the offer period. The listed company is also restricted from carrying out the following acts, without the consent of 75% of shareholders:

• alienate any material assets;
• undertake any material borrowing other than in the ordinary course;
• issue or allot any unissued securities having voting rights;
• conduct any share buybacks or change the capital structure of the company; and
• enter into, amend, or terminate any material contracts, etc.

Considering that public listed companies are required to make periodic disclosures under applicable laws, all price-sensitive information is available in the public domain, therefore public listed companies typically do not provide representations and warranties in the context of the deal. Due to corporate governance implications, listed companies also do not usually undertake additional obligations, unless robust reasons can be evidenced towards benefits of the transaction in favour of the shareholders. However, in select instances, listed companies may provide fundamental warranties (such as authority and capacity, due issuance of shares for subscription transactions). However, business warranties are based on commercial negotiations and usually provided if the acquisition is of a controlling interest and not a minority acquisition.

In case of a MOO, the open offer is required to be for at least 26% of the voting share capital of the listed company. Unless conditional in nature (as discussed in 6.5 Common Conditions for a Takeover Offer/Tender Offer), the acquirer is required to acquire the tender received subsequent to the offer. In case of a voluntary open offer, the acquirer is required to acquire at least such number of shares which would lead to the acquirer exercising 10% of the voting rights in the target company.

Under the Takeover Regulations, the acquirer is allowed to make a delisting-cum-tender offer.

Under the recently amended delisting laws applicable in India, an acquirer can carry out a delisting of the target company, if: (i) tender received in the offer is such that the total shareholding of such acquirer (together with the underlying acquisition) is not less than 75%; and (ii) 50% of the public shareholding has been tendered. That said, note that the minority shareholders of the listed company are not under an obligation to tender in the offer.

Any forced exit or squeeze-out of the minority shareholders must be through a capital reduction process (to be approved by the NCLT) and requires an approval of 75% of shareholders. That said, in such cases, the minority shareholders have the right to approach courts and regulatory authorities to block the squeeze-out. The NCLT’s ambit of judicial review is limited to adjudicating on the fairness of the scheme.

The acquirer is required to have firm financial arrangements in place for fulfilling its payment obligations under an open offer, prior to launching the open offer. The financial arrangements are required to be verified by a SEBI-registered merchant banker hired to run the open offer process.

Tender offers are typically financed through internal accruals, equity financing or debt financing from non-banking entities (since Indian banks are restricted from financing tender offers). Usually, the debt-based financing is structured outside India through convertible instruments and the subscription amount is used to fund the open offer.

In this context, note that bankers and financial advisers are not required to trigger an open offer as part of the acquisition of the shares by the buyer. In certain instances, based on specific facts, SEBI has viewed providers of equity financing as persons acting in concert – where financiers were viewed as using the acquirer as only a conduit, to carry out the open offer, on its behalf.

As discussed in 6.5 Common Conditions for a Takeover Offer/Tender Offer, Takeover Regulations permit withdrawal of a mandatory tender offer only in certain limited cases – inability to obtain financing is not one of them.

In the context of business combinations, arrangement of financing may be agreed as a condition to completion of the acquisition. From a corporate governance perspective, the board of the listed company may have to justify to the minority shareholders the rationale for including such a condition in the transaction documents vis-à-vis the requirements for listed companies to have deal certainty.

As discussed in 6.6 Deal Documentation, corporate governance implication is one of the key considerations guiding the ability of listed companies to support an acquisition transaction, and listed companies do not usually undertake additional obligations, unless proved to be favourable towards the shareholder body. Therefore, it is not typical for listed companies to grant any specific deal protection measures.

However, as discussed in 6.6 Deal Documentation, the Takeover Regulations do prescribe certain value protection measures to be adhered to by the listed company, during the period of the open offer (such as, continue to undertake business in ordinary course, not to effect any change in capital structure, etc).

At the outset, public listed companies in India are required to ensure that at least 25% of their equity shares are held by non-promoters (public). Acquirers cannot acquire 100% shareholding of a public listed company, without carrying out a delisting of the target company.

While Indian law permits majority shareholders to appoint nominee shareholders in the company, the directors have a fiduciary duty to act in the best interest of the company and not just in favour of the majority shareholders they represent. In fact, any arrangement where there is disproportionate allocation of governance rights in favour of majority shareholders vis-à-vis their shareholding, or which is detrimental to the minority shareholders, is subject to regulatory scrutiny.

In the context of profit-sharing arrangements, compensation or profit-sharing arrangements with respect to dealing in securities between a majority shareholder and an employee/director of the listed company requires a board approval and a separate minority shareholder approval.

As discussed in 6.1 Stakebuilding, Indian listed companies are largely promoter driven, with a high concentration of promoter/principal shareholder shareholding. Therefore, acquirers usually enter into arrangements with the promoters/principal shareholders to acquire their shares, thereby triggering a MOO (subject to breach of relevant thresholds). However, the Takeover Regulations do not allow parties to such agreements to tender any of their shareholding in the MOO.

Indian regulators do not view such commitments favourably with respect to listed companies, since these structures tend to compromise shareholder democracy and influence voting decisions.

There is no requirement to obtain SEBI’s approval prior to launching the MOO or executing agreements that trigger the MOO. However, the draft offer is required to be submitted to SEBI for providing its comments, and thereafter, SEBI’s comments are to be incorporated in the final offer letter before its circulation.

Under the Takeover Regulations, SEBI is required to provide its comments within 15 working days from the receipt of the letter. SEBI may also seek clarifications and additional information from the merchant banker, and often, the prescribed timeline may get extended until the clarifications and information are provided. In conducting its review, SEBI analyses the compliance of the tender offer with the Takeover Regulations, including the offer price, and broadly, if the terms of the offer and the transaction will have a detrimental impact on the minority shareholders.

The timelines for the tender offer are prescribed by SEBI through its various guidelines, although the actual time involved in the process may vary, especially, in transactions where regulatory approvals are required, and the payments are subject to obtaining the approvals.

Competing offers can be launched only within 20 working days from the date of the initial tender offer. In such case, the schedule of activities and the tender period for both the initial tender offer and the competing tender offer are carried out with identical timelines, and the last date to tender in the initial tender offer is changed to the last date to tender in the competing offer.

If the completion of the tender offer is subject to regulatory/antitrust approvals, the payment to the tendering shareholders may be delayed until such approvals are obtained. Any such delay would, however, attract an interest to be specified by SEBI (typically 10%) to be paid to the tendering shareholders.

The timing for obtaining the regulatory approval is fact specific and depends on the modalities of the deal. That said, usually parties approach the regulators for obtaining the approvals (or, at least apply for such approval) prior to launching the offer.

Setting up of project companies or SPVs in the energy and infrastructure sector requires compliance with the existing legal framework under the Companies Act along with the regulatory landscape governing the specific sectors. Refer to 2.1 Establishing a New Company.

Principally, no approvals are required to be obtained, except in cases of licensed sectors. For example, generation of electricity is a de-licensed activity in India; a licence is required to be obtained for transmission, distribution and trading of power. In case of an investment by an entity of a country sharing a land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country, that entity can invest only under the government route – ie, after obtaining a prior approval from the relevant Administrative Ministry and/or Department.

Regulatory Bodies

The key regulatory bodies governing the key sectors in the energy and infrastructure sectors are as follows.

• Electricity – Ministry of Power and Ministry of New and Renewable Energy;
• Adjudicatory Bodies – Central Electricity Regulatory Commission and State Electricity Regulatory Commission for inter-state and intra-state electricity transactions;
• Oil and Gas – Petroleum and Natural Gas Regulatory Board and Ministry of Petroleum and Natural Gas;
• Shipping and Ports – Ministry of Ports, Shipping and Waterways and Directorate General of Shipping;
• Roads and Highways – Ministry of Road Transport and Highways and National Highways Authority of India;
• Telecoms – Department of Telecommunication and Telecom Regulatory Authority of India;
• Other relevant departments – Bureau of Energy Efficiency and Ministry of Environment, Forest and Climate Change; and
• Municipal or Local Authorities.

Timeline for Obtaining Permits and Approvals

The timeline for obtaining the applicable permits and approvals is based on the project’s nature, size and location. However, it may take up to six months for obtaining the approvals and/or licences in regulated sectors.

The primary securities market regulator for M&A transactions is SEBI for public listed companies.

India regulates foreign investment depending on the sector in which the investment is proposed to be made. In the energy and infrastructure sector, except in case of mining and mineral separation of titanium-bearing minerals and ores, its value addition and integrated activities and defence sectors, 100% foreign investment is permitted under the automatic route – ie, no prior approval is required to be obtained. Refer to 7.1 Regulations Applicable to Energy & Infrastructure Companies.

As for the FDI filing, it is mandatory for foreign investors to adhere to certain reporting requirements. Depending on the nature of the investment (ie, whether primary or secondary), relevant forms must be submitted to the Reserve Bank of India (RBI) reporting the investment in equity instruments by foreign investors. 

Refer to 7.3 Restrictions on Foreign Investments.

While export control regulations do not apply to the energy and infrastructure sectors, such regulations are applicable on dual-use goods and technologies (ie, goods and technologies that can be used for both civilian and military purposes) and cannot be exported without an export authorisation from the Director General of Foreign Trade. The restrictions are applicable on the export of nuclear technology and material, solar panels with specific components depending on the materials involved, and export of technologies that could impact national security, especially in communications infrastructure.

According to the merger control regime in India, antitrust filing for takeover offers and business combinations are required if the business combination breaches the prescribed deal value threshold (DVT) and does not fall under any exemptions provided under the Competition Act, 2002 (the “Competition Act”). A notification of the business combination must be made to the Competition Commission of India (CCI) if the combination breaches the DVT. The CCI will issue a prima facie opinion if, on the basis of its analysis, it believes that the transaction is likely to cause an appreciable adverse effect on competition (AAEC) in the specific industry within 30 working days from the date of notification, or approve it if there is no AAEC. However, if the CCI does not pass an order within a period of 210 days, the combination is deemed to be approved.

The Competition Act provides for the De Minimis Exemption which exempts transactions from notification to the CCI, if the target assets/company/business/division being acquired has either:

• value of assets not exceeding INR4,5 billion in India; or
• turnover not exceeding INR12,5 billion in India. 

The Competition (Amendment) Act, 2023 has introduced an additional test for determination of the DVT for notification to the CCI if:

• the value of the transaction exceeds INR20 billion; and
• the target has substantial business operations in India.

The key labour legislations and aspects that should be looked at during an M&A transaction to understand the operational practices and potential issues of a company are:

• compliance with employee benefit legislation and contribution towards funds and insurances; and
• disputes in relation to employees, workers and contractors, trade unions, etc.

While there is no formal works council system as prevalent in European countries, typically, companies have mechanisms for personnel representation through trade unions. Such consultation with employees and unions are not legally binding, however, labour consultation may be required if the target’s personnel are represented by a trade union, and forms the basis of the collective bargaining agreements entered into between the target company and such trade union. It is not mandatory to disclose such information either to the board or the shareholders.

The currency control regulations are primarily regulated by the RBI and governed by the Foreign Exchange Management Act, 1999 (FEMA). A prior approval may be required from the RBI for a transaction involving FDI in the government-approval route, if the combination involves the transfer of shares or interest in an Indian company by a person resident outside India or an overseas citizen of India or an erstwhile overseas corporate body. As per the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, in cases of merger or amalgamation of a transferor foreign company incorporated outside India (being a holding company) and the transferee Indian company (being a wholly owned subsidiary company incorporated in India), a prior approval from the RBI is required to be obtained by both companies.

In order to regulate receipt and payment in foreign exchange transactions, RBI has also issued the Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2023, which provide that no Indian resident is permitted to make or receive payments from a non-resident, unless permitted under the foreign exchange laws or approved by the RBI. These regulations also bifurcate the transactions into trade transactions and transactions other than trade transactions. Receipt/payment for any export or import have been provided for countries like Nepal, Bhutan, and Asian Clearing Union member countries, in case of trade transactions. Further, apart from trade transactions, payments and receipts for any current account transaction may only be made in Indian Rupees between an Indian resident and a foreign resident visiting India.

A few significant legal developments relating to energy and infrastructure M&A are the following.

• Liberalised FDI restrictions to accelerate investments in the energy and infrastructure sectors, except in atomic energy.
• SEBI, to enable ease of doing business, has allowed the process of delisting of companies to be simplified and the acquirers will now be allowed to make an open offer at the same time as a delisting offer.
• Revision of “Angel Tax” by way of the Finance Budget 2023 has become an important consideration for valuation. The Finance Act, 2023 has brought investments by non-residents in an unlisted Indian company at a price more than fair market value under the ambit of Angel Tax and the difference in prices will be considered as income from other sources, taxable at the hands of the investee company in India. Angel tax has been exempted for certain classes of overseas investors including FPI, pension funds and endowment funds from certain jurisdictions; banks or entities involved in insurance business; SEBI registered alternative investment funds (Categories 1 and 2), as well as start-ups (which fulfil certain conditions) incorporated in India.
• The Supreme Court has recently held that the definition of lease under the Indian Stamp Act, 1899 and Section 105 of the Transfer of Property Act, 1882 includes any instrument by which tolls of any description are let. The court also held that appropriate stamp duty will be payable by the BOT concessionaire on the amount likely to be spent on the project under the agreement to lease and right to collect the toll. Payment of such stamp duty must be taken into consideration by the investors.

For transactions involving purchase of shares in listed companies and/or the schemes for mergers and demergers, the potential acquirers are provided with access to undertake a due diligence activity. The company may provide financial statements, material contracts, intellectual property details, applicable permits and consents, details of litigation (both pending and threatened), etc.

However, any unpublished price-sensitive information (UPSI) can only be provided if the board is of the view that disclosing such information is in the best interest of the company and passes a resolution authorising the disclosure of UPSI. However, in cases where a tender is floated, any UPSI of a company must be disclosed in tender documents and in cases where no tender is triggered, such UPSI must be made public before the deal is finalised.

There are no regulatory restrictions on the quality or quantity of information that can be provided in a due diligence process, however, the information provided to different bidders is based on the specific information sought by the bidders.

Data privacy in India is regulated by the Digital Personal Data Protection Act, 2023 (the “DPDP Act”) which provides for procedures and penalties for use of personal data of individuals, whether collected in digital form or non-digital data. The definition of “person” under the DPDP Act includes companies, firms and artificial juristic persons. The DPDP Act does not apply to data which is processed for individual or domestic purposes, and data which has been made publicly available by the owner of such data.

Any company-related information processed by investors for due diligence purposes is not subject to restrictions under the DPDP Act, as it exists in the public domain or is provided by the companies themselves.

Under the Takeover Regulations, the public announcement of an open offer (based on the events discussed in 6.2 Mandatory Offer) is required to be made on the date of execution of the transaction documents (in indirect acquisitions – immediately thereafter) in the prescribed format. This is followed by a detailed public statement and thereafter, the tender offer.

For acquisition of unlisted companies, there is no requirement to make a public disclosure of a bid in relation to its acquisition. In mergers, demergers and business transfers, the board is required to make statutory disclosures after approving the transaction.

In business combinations (scheme-based mergers or demergers) between unlisted companies or business transfer transactions, there is no requirement to issue a prospectus. If the business combination involves a listed company, an abridged prospectus is required to be issued.

Please note that there is no requirement for the buyer’s shares to be listed on a specified stock exchange for it to acquire the shares of a listed company.

In open offers, detailed financial statements of the acquirer are not required to be submitted, but limited audited financial information – such as total revenue, net income, earnings per share, etc, are required to be disclosed in the offer letter and the detailed public statement. In mergers and demergers, the financial statements of the entities are required to be provided to the exchanges for inspection by the shareholders.

The financial statements are required to be prepared in accordance with the applicable accounting standards (which includes the accounting standards issued by the Institute of Chartered Accountants of India and GAAP).

In the acquisition of listed companies, the key terms of the transaction documents (such as transaction type, any proposed change in control) are required to be specified in the tender offer and the detailed public statement, to be prepared as the standard formats prescribed by SEBI. The transaction documents are not required to be filed but have to be made available for public inspection during the tender offer period.

If the proposed acquisition involves a sale of shares between residents and non-residents, the key extracts of the transaction documents are to be filed with RBI. Further, if the transaction triggers the requirement of a merger filing, then a copy of the transaction documents should be filed with the CCI as part of merger control filing.

The directors have a fiduciary duty towards the company and its shareholders (including minority shareholders) to act in good faith towards the best interest of the company, its members, the community at large and the environment. Directors are required to exercise due care, skill and diligence, avoid conflicts of interest and not seek undue gains. Independent directors have additional responsibilities which include the obligation to report unethical and corrupt behaviour.

There are no special duties or obligations prescribed for directors for business combinations involving unlisted companies. In case of listed companies, the director has the following obligations during an open offer process under the Takeover Regulations:

• the board of directors is expected to ensure that the business of the target company is conducted in the ordinary course;
• the persons representing the acquirer are precluded from being appointed as directors in the listed company, during the offer period;
• existing directors who may be representing the acquirer must not participate or vote on any matter in relation to the open offer; and
• after the closure of an open offer, the directors must assist the acquirer in the verification of the shares tendered for acceptance under the open offer.

The decision whether establish special or ad hoc committees for business combination transactions largely depends upon the company and the complexity of the transaction. In merger and demerger transactions, parties can choose to constitute transaction implementation committees, which commonly have equal representation of both the parties involved and may include the directors of the parties involved. However, it is not typical for bilaterally negotiated business transfer transactions to have implementation committees.

The Takeover Regulations require the board of directors of the target company to constitute a committee of independent directors, which is required to provide reasoned recommendations on the open offer. This recommendation is required to be published at least two working days prior to the opening of the offer.

Directors are required to annually disclose their interest in any other entities and update such disclosures in a timely manner. While directors have a fiduciary duty to ensure their interests are not in conflict with that of the company, in case of public companies, directors are barred from participating in meetings or voting on resolutions they may have an interest in.

The key duties of the board include formulation of corporate strategy, allocation of resources, management of risks, communication with shareholders and overall governance of the company. The board plays an active role in case of M&A transactions as it is tasked with the strategic analysis of the target to ascertain synergy with the acquirer’s business and its long-term strategic goals.

The board plays an active role in business combinations, since the board is required to approve these transactions. Other than setting up a committee as discussed in 11.2 Special or Ad Hoc Committees, in open offer transactions (where the promoters or principal shareholders are selling their shares), the target company’s board has a limited role as the target company may not necessarily be a party to the transaction.

While it is not common for shareholders to challenge the decisions of the board in case of M&A transactions, shareholder disputes do arise for reasons which may include – the deal violates the existing rights of the minority shareholders under the articles of association or is oppressive to them; unfair dilution of shareholding; the terms of the open offer or valuation are detrimental to the minority shareholders; or not being treated at par with the majority shareholders.

Independent advice is typically sought on formulating transaction structures with specific advice on tax implications, opinion from legal counsel on compliance with applicable laws and appropriate issuance of shares, valuation certificate from valuers. The committee of independent directors, formed to provide recommendations on open offers, is permitted to seek professional advice or consult SEBI-registered merchant bankers. In mergers and demergers involving listed companies, a fairness opinion from a SEBI-registered merchant banker is mandatory before filing the scheme before the NCLT.

Specifically in case of energy and infrastructure transactions, technical advisers are also appointed to ascertain the quality of the assets, their compliance with performance parameters vis-à-vis industry standards and overall operational life and risks thereof.