Dealmaker: Rajat Sethi of S&R Associates

Bar & Bench recognizes Rajat Sethi as the Dealmaker for his role in Qatar Foundation Endowment’s (QFE) investment in Bharti Airtel Limited (Bharti Airtel) for acquiring a 5% stake. We understand that the transaction was complex and involved several regulatory and commercial issues. Rajat and his team provided valuable legal advice to their client (QFE) with regard to structuring the deal..The Deal.QFE invested $1.26 billion in Bharti Airtel for a 5% stake and one seat on Bharti Airtel’s board.This is reportedly the largest ever-private equity investment in India. QFE is a long-term global investor that was established to fund the activities of Qatar Foundation, a non-profit organization..Other Counsels on the deal from S&R include Delhi Corporate Partner Juhi Singh and Corporate Associates Mohit Gogia, Rachael Israel, Ananya Bhattacharya and Dhruv Agarwal. Juhi joined the firm in 2008 and her areas of practice include M&A and Capital Markets. Prior to S&R, she worked at Jones Day and P&A Law Offices..Bharti Airtel was advised by its in-house legal team led by Mukesh Bhavnani..You can read our news report on the deal..Bar & Bench spoke to Rajat Sethi on the transaction, and on some larger aspects of PE transactions including the legal risks involved in PE deals and future trends..Dealmaker: An introduction.Rajat Sethi co-founded S&R Associates with Sandip Bhagat in 2005. Prior to setting up the firm, Rajat worked at P&A Law Offices where he did M&A and general corporate work. Rajat’s M&A practice covers foreign investment, joint ventures, private equity, venture capital, corporate governance, competition, regulation and restructuring matters..Rajat has over 15 years of experience advising Indian companies and private equity firms on acquisitions and sales, minority and controlling investments and exits, joint ventures and shareholder disputes..Role on the Deal.Rajat Sethi: S&R’s role involved legal diligence, advice on Indian regulatory matters, drafting and negotiation of transaction documents, and assisting with closing matters..High point of this deal.Getting to the finish line..We worked very closely with the QFE in-house legal team. It was a pleasure working with the team whose members included David Mee, General Counsel, and Michael Chan, Senior Transaction Counsel. The team brought its international experience to bear on this transaction..Any Challenges.One of the challenges was to attempt to keep pace with the fast-paced developments in the Indian telecom sector in recent times. S&R has done a lot of work in this space, so that experience was helpful..Evolution of private equity market over the last few years/Emerging Trends.The PE industry in India has certainly been through a turbulent period, but that could be put down to a process of churn that has generally affected the Indian economy, and indeed the world economy, and will hopefully make it tougher and more resilient in medium to long term. In the good times, a number of Indian businesses signed on the dotted line to receive PE funds seemingly in the hope that the good times will continue to eternity, and at some level, also an awareness that enforcement of contractual rights in relation to exits by PE firms in an Indian context, given the ever-changing Indian regulatory landscape and ambiguities, will be challenging. In the last 2-3 years, one has seen PE investors testing the efficacy of various contractual provisions that have been considered the norm in PE deals, with varying degrees of success. This has meant a lot of learning for the Indian PE industry and the long-term players, equipped with hands-on real life experience of the Indian legal system and some of its pitfalls and strengths, will certainly be wiser and will put that learning to good use in their next rounds of PE investments..Activity in the PE investment market in India/Sectors with more demand for PE funds.At this time, more VC deals, PIPE deals, secondary sales. Lower average deal sizes..The sectors in which we have seen relatively more demand for PE funds seem to be healthcare, consumer, e-commerce, entertainment, IT/ITES, education..Regulatory uncertainty on PE transactions/ Legal hurdles.The well-known issues around options and acquisition of “control” continue to persist. The grey areas in retail and pharmaceutical sectors have not been fully addressed. The archaic regulation in healthcare and education sectors has not kept pace with the times. Also, FDI caps in certain sectors, and the rationale for their continued existence, require an urgent review. The solutions offered by the regulators in many of these cases have lacked substantive rigour, and invariably such solutions have offered “too little and too late”. In deals requiring regulatory approvals, the process seems much longer since decision-making has been rather slow..In adverse market conditions, instead of a focus on improving the investment climate, the Revenue has come up with novel interpretations of existing laws to disturb long-settled positions. In addition, the indefensible retrospective changes to tax laws in the face of a Supreme Court judgement, and the Government’s subsequent flip-flops, have had a pronounced dampening effect on the international investor sentiment, which in turn has contributed to reduced ability of PE funds to raise new money for investments in India and reduced interest in the Indian equity markets. Sluggish equity markets have led to far lesser number of successful PE exits through IPOs than one would have expected five years ago..Future trends.I see greater participation in management and focus on governance structures in existing portfolio companies; a higher number of secondary sales. Greater interest in looking at deals involving acquisition of a controlling stake. More IPO exits over the next couple of years if the markets pick up (this would be subject to the election year over-hang). While funds seem to be available, investors appear to be adopting a cautious approach.