India's central bank will allow lenders to finance upto 75% of the acquisition value in corpo-rate takeovers, in a move that is expected to boost the country's $40-billion plus deals market.
Financing can only take place when a firm "already holds con-trol" over the target company. the Reserve Bank of India announced late Friday. Banks can fund companies for buying an extra stake exceeding a threshold of 26%, the regulator said.
The decision comes at a time when corporate appetite for M&A deals is rising in India, fuelled by robust balance sheets and resilient domestic demand.
Beyond bank financing, an acquirer must put up the bal-ance amount on its own. through fresh equity or internal accruals, the RBI said. The cen-tral bank is also the regulator for the country's financial sec-
tor. Currently, lenders are barred from directly financing acquisi tions due to regulatory and asset-quality concerns. Most corporates typically turn to non-banking financial compa-nies, foreign lenders, or public and private markets.
have a minimum net worth of 5 An acquiring company must billion rupees ($55.2 million
and report a net profit for each of the three previous fiscal years. The same rules apply for unlisted companies, along with the additional requirement of an investment grade rating, the RBI said.
Acquisitions can take place through a single transaction or a series of interconnected deals, within a year from the date of but will have to be completed execution of the agreement. The buying company cannot be a related party of the target firm, the RBI said, referring to enti-ties where the management or founder's group are common.
lenders finance mergers and proposed the plan to let local The central bank had first acquisitions in October.
