MUMBAI: The easing of foreign direct investment (FDI) policy norms for the pharma sector should help in reducing timelines for deals as well as result in more funds being pumped into the sector, according to analysts.
As part of a second wave of big bang reforms, The government on Monday approved 74% FDI in brownfield pharma and 100% FDI in greenfield projects, both 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 robust double-digit 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. Kalpesh Maroo, partner in BMR & Associates, said, "The 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 at Khaitan & Co, said.
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