MUMBAI: The easing of foreign direct investment (FDI) policy norms for pharma sector should help in reducing timelines for deals, as well as result in more funds being pumped into the sector.
Under the second wave of big bang reforms, the government on Monday approved 74% foreign direct investment under the automatic route in brownfield pharma, and 100% FDI in greenfield projects under the automatic route. The first set of big ticket reforms were announced in November 2015.
Analysts say that the move may lead to more deals in a sector which shows a double-digit robust growth year- on-year, and outperforms the Sensex.
Industry experts say the move will allow promoters to monetize part of their shareholding easily, should they choose to do so. The FIPB process used to add to timelines, and deals will close much quicker, they add.
“This change will benefit financial investors, as they would generally pick up only minority stakes. As a result, investments and exits will both become quicker,” Bhavik Narsana, partner in law firm, Khaitan & Co said.
Says Kalpesh Maroo, partner BMR & Associates “This pharma sector has been witnessing heightened activity in the recent past and this change should help in reducing timelines for deals involving FDI of less than 74% equity stake”.
However, there is not much clarity on certain aspects in deals. “A sticky issue for M&A deals has been the non-compete issue as non-compete proposals were not permitted without approval. The press release is silent, but one would hope that every aspect of the deal, including non-compete clauses, should be under the automatic route so long as the investment is 74% or below,” Rajat Mukherjee partner, Khaitan & Co said.
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A business journalist with around two decades of experience track...
Read MoreA business journalist with around two decades of experience tracking key consumer-focussed sectors like consumer durables, retail, consumer goods, aviation, automobiles and advertising, as well as economic ministries of the Union government. Now, writes primarily on pharmaceuticals and healthcare, and on issues of consumer interest. Besides also looks at trends that are shaping consumer behaviour and the broad consumer landscape. \nYou can follow Rupali on Twitter@Rupalijee.
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