Dealmaker Ashwath Rau of Amarchand Mangaldas

For the past fortnight, Bar & Bench recognizes Ashwath Rau as the Dealmaker for his role in Bain Capital’s acquisition of 30 per cent stake in Genpact Ltd. We understand that the transaction was complex with multiple legal and commercial issues. He has not only advised his client, Bain Capital, on the Indian aspects of the transaction, but has also worked closely with the international advisors, who led the transaction, in closing this offshore transaction..The Deal .Private equity player Bain Capital agreed to purchase approximately 68 million Genpact shares from existing investors General Atlantic and Oak Hill Capital Partners for $1 Billion (approx Rs. 5,500 crore), representing approximately 30 per cent of Genpact’s outstanding shares..After the transaction, the selling shareholders will own approximately 10 per cent of Genpact’s outstanding shares while Bain Capital will own 30 per cent. As part of the transaction, Bain Capital has agreed not to sell any Genpact shares for a period of two and a half years, subject to limited exceptions..Counsels on the Deal.Other counsels on the deal include Ropes and Gray, who acted as International legal counsel to Bain Capital with a team led by Boston Partners Newk Stillwell and William Shields. Cravath, Swaine & Moore acted as legal counsel to Genpact with a team led by New York Partner Sarkis Jebejian. On the Indian Competition law aspect, Amarchand Delhi Partner Naval Chopra advised Genpact while Amarchand Mumbai Partner Nisha Uberoi advised Bain Capital..Nishith Desai Associates advised the existing investors General Atlantic and Oak Hill Capital with a team led by Managing Partner Nishith Desai while Paul, Weiss, Rifkind, Wharton & Garrison acted as International legal advisor to existing investors with a team led by New York Partners Mathew Abbott and Neil Goldman along with London Partner David Lakhdhir..You can read our news report on this deal..We spoke to Ashwath Rau on the transaction and on some of the larger aspects including investor sentiments for Indian market, the current market scenario, about recent economic reforms and on the competition law jurisprudence..Dealmaker: An Introduction .Ashwath Rau is a Partner at Amarchand Mangaldas. He joined the firm in 1999 after graduating from National Law School of India University, Bangalore. He entered the firm’s partnership in 2006..Ashwath has over 14 years of experience advising Indian and International clients and his primary areas of practice include foreign investment, acquisitions, joint ventures, funds (mutual, venture capital and private equity) and financial services and regulation..High Point of this Deal.Ashwath Rau: “This deal happened at a time when the India story was, I think, at its lowest phase and to have a billion dollar private equity investment for a minority stake in a business with an India connection I think sent out a very strong message from a India story perspective”..Investor mood and thoughts on current market scenario.“It’s fair to say, at least speaking for my firm and myself, we have been pretty busy on the strategic side and whilst there has been activity in the private equity space, it has been slower. For M&A activity, in terms of foreign investors coming in and acquiring businesses and setting up businesses and doing joint ventures, I think interest has remained pretty robust and provided comfort that investors still believe that the long term India story is still intact notwithstanding all the flux and the uncertainty we have had. It is not as if private equity deals have not been happening, but its taking a lot more to close deals because of all the uncertainty, not just from a tax perspective or also on account of issues/delays with governmental/regulatory approvals. The general legal framework and regulatory framework (in terms of enforceability of the contractual understanding) poses its own set of challenges because there is uncertainty in terms of foreign investors being able to achieve their commercial objectives. So things like ambiguity on the enforcement of put and call options, uncertainty in relation to enforcement of pre-emption rights in certain scenarios (now relatively marginal), lack of clarity in relation to what approach our tax department is going to take on almost everything are all the elements that add to the challenges. Ultimately, unless these uncertainties are dealt with, you do have a challenge..I think it is not just the government’s responsibility, which can and has reformed policy. At the end of the day,everybody who is involved in the process, the regulators, government departments involved in implementation, the tax department, state governments etc, ultimately have to play a facilitative role. They have to buy in to the fact that ultimately investment is needed for growth. Not just foreign investment, but domestic investment as well..There are lots of other issues, which are atmospheric like retrospective application of law, challenges in relation to land acquisition, challenges in getting project approvals. So setting up a Joint Venture and giving effect to the commercial understanding between the partners is just one set of challenges, with the other set of challenges being actually getting the project off the ground and making it a commercial success. One would have thought that getting a commercial viability of a business proposition itself was enough of a risk, to add framework as well as implementational regulatory uncertainty around it, just makes it unviable..At the end of day, everybody is looking at India as one amongst many emerging markets that are available to them for investment and they would rather go to a market which gives them a high degree of certainty even if they have to take a haircut on the potential rate of return..We went through quite a low earlier this year. Whilst I think the recent developments in terms of the Shome Committee’s recommendations on GAAR, the government’s push towards FDI etc are big positives and have helped, whether it will result in investment and growth remains to be seen. I think the answer should be yes but it will take time. We are talking about a potential 2-3 year time horizon in which one should see the benefits of the recent policy relaxations but one benefit I think that is immediate is the boost to investor sentiment. We are a very sentiment driven market, and the fact that finally the government has leaped out of its policy paralysis and shown clear intent to do what it takes including the diesel price hike, FDI policy reforms, financial sector reform etc. are proof of the fact that they are willing, possibly for the first time in two terms in Government, to take the hard decisions. So I think from the sentiment perspective these developments are really positive. One expects the second half of this year to be busier for transactional lawyers..The India story always had substance. I think everything that was happening over the last couple of years has raised some serious questions in terms of whether or not that story was going to stay intact or is going to crumble, because of government inaction, corruption and several other issues.”.The government has recently announced some economic reforms like allowing FDI in multi-brand retail, etc. Your views in relation to impact of these reforms..“The big one is multi brand. It is a thought through policy though there are many stipulations. Driving to a consensus in a democracy like ours, to put it mildly is near impossible, but I think they have actually taken the views of many stakeholders if not all and have tried to address them. So what has come out is a good balanced policy. It is not necessarily going to be easy to implement the policy because this is probably the first foreign investment policy, which has pretty much left it to state governments to decide whether they are going to allow multi brand retailers to set up shop in their state. That could pose a bunch of challenges because Indian retailers looking to raise FDI will first have to separate their business into FDI compliant and non-FDI compliant. There are going to be a lot of operational and structuring challenges. As corporate lawyers, this means a lot of work for us, which is never bad, but from the business community’s perspective, there are going to be several challenges. But all in all, FDI opening up in retail is, I believe is the single most significant FDI related policy measure to happen in my career. The benefits to our country far outweigh the potential negatives..The biggest benefit is likely to be investment on a very large scale in the supply chain structure. This includes ensuring better storage facilities, minimizing spoilage and wastage and cutting out the middle man which means more money ultimately for the farmer/producer. At the same time, the price of products will decrease because spoilage will be reduced so it will help tackle inflation as well.”.Recent developments in competition law jurisprudence and how do you see this area evolving..“The Competition Commission of India got off to a good start. They said they are open for business and they were facilitative, but we are seeing “teething” problems. Their current approach has brought within their purview transactions, which have no implications on competition, adding to the challenges of completing a transaction. The hope is that with experience and with the market picking up as a whole, they will focus on transactions that have implications on competition. .Also, the recent cement cartel case is going to be a landmark case in the evolution of competition lawjurisprudence because it will establish the evidentiary standard that will be applied to industry in determining whether or not there has been a cartel. If that standard is too low, it’s going to hurt the economy because penalties are crippling and if it’s too high as well it’s going to hurt the economy because proving a cartel is not an easy exercise. But I think if they get it right, it will go a long way towards contributing to industry and the growth of our market.” .Lastly, your thoughts on future trend of cross border transactions..“If you look at the progress over the last 20 – 25 years, the path towards liberalization has been a steady one way street. Almost all the work I do has a cross border element. Now the definition of ‘purely domestic’ itself has changed because the domestic market place has so many foreign players..Cross border work is certainly going to be a large part of what keeps corporate lawyers busy. I only see that picking up. With reforms hopefully helping our growth story get back on track, one is optimistic, though a lot will depend on what happens in the 2014 elections. Indian corporates continue to look to acquire businesses offshore and Indian institutions and businesses are looking to raise capital offshore. The capital market has taken quite a beating globally and relatively in India over a past couple of years and it has been pretty slow. That should hopefully change. A large part of revenues of our largest industrial house, the Tata group, comes from outside India and they are genuinely a global conglomerate. So the aspirations and operations of corporate India are no longer limited to India..Lawyers in our profession today get a lot of exposure of different cultures from across multiple countries and continents and get to see how things are done in multiple markets. That enriches experience and helps in the evolution of better lawyers. We get to see different approaches to business and to the law. Those of us who are practicing today in India should consider ourselves privileged. I am not even looking at it from the economic perspective, I but purely in terms of the content of our day-to-day life. This kind of opportunity never existed two decades ago in India.”