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Singh on song - Indian law post-elections

India’s new government could be the springboard for the country’s legal system to scale new heights.

The recent Indian elections saw a decisive win for the Congress Party, the stock markets rally, the various economic growth forecasts adjusted and the ­rating agencies ditching their gloomy ­outlook for the country (see ‘Elections’ box).

The optimism within the business ­community here is so heartfelt and the belief in the new government so strong, it is ­reminiscent of the first month or so after Barack Obama’s election victory in the US.

Nevertheless, the data for the start of the year makes for depressing reading. India, much like the rest of the world, has suffered in every major sector (see ‘Figures’ box). The country, as ever, faces incredible challenges.

But amid those challenges, even though they come with a long wish list of demands from their old but newly emboldened government, Indian lawyers are also seeing great opportunities. In India, it is business time.

“It’s still a little early for M&A,” says ­corporate partner Shameek Chaudhuri of AZB & Partners. However, Chaudhuri adds that since the election there has been a hunt for institutional investors. In three to five weeks, he predicts, there will be a lot of ­private placements, a precursor to private equity deals.


A month ago Berwin Leighton Paisner held a seminar in ­London, during which a panel of prominent India watchers posed a hypothetical question to the assembled audience of potential India investors: “If you had £100,000 of surplus funds lying around, would you invest it in India?”

Hands were raised; the split was even. Many said they would not make any investment in India until the then ongoing election was decided.

Fears were raised about a hung parliament, and even the spectre of a Third Front, or even a Fourth Front, were bandied about.

During the five weeks of polling the wild speculation and fears mounted in India’s national press. Until counting day on 16 May, that is, when commentators then ate their words and India gave itself a more stable government than any investor could have dreamed of.

Prime Minister Manmohan Singh’s new cabinet was announced on 29 May. There were few surprises in the allocation of ministerial portfolios - apart from one: long-time party loyalist HR Bhardwaj was unceremoniously dropped from the cabinet and from his role as law and justice minister.

He was replaced with a candidate out of left-field, Veerappa Moily, former lawyer and chief minister of the state of Karnataka, which has Bangalore as its capital.

Confusion now reigns in the legal market over what this will mean for the liberalisation of legal services, which Bhardwaj had spearheaded.

Investors and lawyers, take heed: it is very difficult to predict anything in India, most of all politics.

The mammoth $23bn (£14.24bn) ­Bharti Airtel-MTN merger of 25 May, which if completed would be India’s largest cross-border M&A deal ever, has been a welcome post-election gift for several firms.

AZB snapped up the lead Indian role for longstanding client Bharti, while Freshfields Bruckhaus Deringer has the enviable role of international counsel to South African mobile phone operator MTN.

While the deal has a long-running and complex history and cannot be taken as a sign of a revival of the market in itself, it has nevertheless created speculation about ­outbound M&A activity coming later in the year from other cash-heavy Indian telecoms majors.

“I think in the third and fourth quarters of this year you’ll start to see Indian ­multinationals looking to do some mega acquisitions in the $20m-$200m range,” predicts India head Ralph Voltmers at US firm Covington & Burling. Voltmers is also banking on US pharmaceutical companies looking to make acquisitions in India.

Ready, steady…

Not everything is quite ready for them yet, though. In particular, several well-intentioned government press releases are causing headaches for Indian lawyers grappling with foreign investment, an area that has always been weighed down by heavy regulation.

“As a corporate M&A practitioner,” says Khaitan & Co partner Rabindra Jhunjhunwala, “I’m hoping for a further liberalisation of FDI [foreign direct investment] and ­further clarification and clear norms being set wherever there’s confusion.”

Press notes two, three and four, issued in February, aimed to simplify the foreign investment rules to give more flexibility to companies with part-foreign ownership. What it unintentionally created was a new way of interpreting the regime, which ­companies such as Pantaloon Retail and UTV Media promptly exploited to ­restructure and increase their FDI through complex joint venture arrangements.

But a clarification on the press notes is expected in the coming weeks, which could scupper those plans but cure a lot of other headaches.

If lawyers have their way, this is not the only thing that should be on the government’s agenda. “Firstly, the entire area of laws which affect corporate India need looking at,” insists Amarchand & Mangaldas & Suresh A Shroff & Co managing partner Cyril Shroff. “And this shouldn’t be done in a hurry, but in a thoughtful way.”

Shroff says he would like the government to focus on reform in five key areas, ­namely improving the ease of establishing new ­business, enhancing corporate governance, modernising securities markets, improving M&A regulation and bulking up the ­bankruptcy rules.

The faith is there. “Considering the ­government doesn’t have to do firefighting on any subject, I feel that whatever they do they will do at a fast pace. I think you’ll see a lot of developments within a year,” says Jhunjhunwala expectantly.

In some areas work has progressed well. For example, India finally blessed its ­Competition Commission, established around a decade ago, with teeth on 20 May, giving it a full arsenal of investigation, enforcement and leniency powers.

“For local or national businesses that have never been exposed to national ­competition norms, it could be a bit of a shock to their business culture,” comments Berwin Leighton Paisner associate director ­Warsha Kalé, who specialises in Indian ­competition law.

“But the flipside,” she adds, “is that it might even encourage investment by some companies, knowing that you’re operating on a more level playing field.

That in itself might be attractive to some ­companies.”

Where’s the money?

According to the figures, the Indian equity capital markets and loans were hit ­particularly hard at the beginning of the year (see ‘Figures’ box), but practitioners hope that recovery is not far off.

“I think it’s picking up again now that we have a government,” says Luthra & Luthra capital markets partner Madhurima Mukherjee. “The markets have certainly responded positively.”

She says that some clients are even ­considering IPOs or reviving IPOs that were shelved when the downturn first hit. “But the Sensex [Bombay Stock Exchange ­Sensitive Index] swings quite a bit and so does the mood,” she adds.

A serious future growth market area in India will be debt capital markets. Debt instrument issuance is negligible when ­compared with equity fundraising, added Mukherjee.


Indian market activity over first quarter of 2009, as against first quarter of 2008:
Domestic M&A activity: Down 73 per cent to $4.9bn (£3.03bn)
Inbound M&A activity: Down 80 per cent to $861m
Outbound M&A ­activity: Down 93.8 per cent to $303m
Loans: Down 46 per cent to $5.7bn
Equity capital markets: Down 99.9 per cent to $4.9m (the lowest ­quarterly volume since 1998)

Source: Thomson Reuters

Compared with corporate and capital markets lawyers, there is still a relative scarcity of projects specialists in India. Those who are such, or hold themselves out to be, are currently being wooed by firms. Amarchand and Khaitan in particular have both recruited partners into their practice groups within the past month.

India’s infrastructure is in a dismal state and billions are set to flow into the sector to bulk it up. Sujjan Talwar, a projects partner at Economic Laws Practice, says he would like to see more creativity and initiative being taken by the politicians. “I’m hoping that, almost like the UK-style system, there’ll be central procurement of ­infrastructure projects,” he says.

Talwar envisages something akin to PFI, not just in areas such as health and ­transport, but also in rural and urban ­infrastructure, including agricultural waste processing and low-income housing.

Manches real estate partner Rajan Shori agrees that there is a huge need for urban housing, but thinks that the government should intervene to make mortgage finance more widely available to the country’s ­aspirant young.

Lawyers are clearly a demanding ­electorate. But that is exactly what India needs right now and it is the premise on which the Congress Party was given such an overwhelming mandate.

Well, one of the premises.

The government will also have several other bugbears to deal with, such as security, poverty, religious and caste tensions, basic education, hostile neighbours and, of course, that dear old friend, corruption.

This article first appeared in The Lawyer magazine in the UK on 8 June 2009.
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