Legal e-mag reports how much law firms made from IPO, QIP rush last year. Amarchand & Mangaldas, Luthra, Crawford Bayley top the list
2010-2011 saw quite a few memorable IPOs (initial public offers) and QIPs (qualified institutional placements) last year. Whatever followed afterwards-with the market, the issuers, banks, the buyer companies or individuals-it was a win-win situation for legal firms that were consultants.
In its second annual report on capital markets published recently, "Bar & Bench", a legal webjournal, has listed the top ten legal firms that benefited as counsellors during the last fiscal. Amarchand & Mangaldas & Suresh A Shroff & Co (AMSS) emerged at the top of the list. Second is Luthra & Luthra which undertook some 20 transactions, then Crawford Bayley & Co with 18, AZB & Partners with 16 deals and Khaitan & Co with 15.
"Top-tier domestic law firms charge anywhere between Rs30 lakh (about US$65,000) to Rs80 lakh (US$175,000) for an IPO. For the EIL (Engineers India Ltd) IPO, insider sources revealed that Luthra and DLA Piper jointly quoted about Rs1.35 crore (US$300,000), Amarchand and O'Melveny quoted Rs1.65 crore (US$366,000) and S&R along with Dorsey had put in a bid of about Rs1.75 crore (US$388,000)," the report says. Yes, you can raise your eyeballs now.
Bar & Bench's yearly review has everything on upcoming IPOs, commentaries on select sectors and market expectations, and a round-up of the IPOs and QIPs that happened last year. It may appear surprising, that a legal magazine would do the job of a market analyst. After all, legal discussions and cases are supposed to be their field of interest; and incidentally, lawyers are also supposed to be occupied with courts instead of watching the movement on the Sensex. But if you are a financial consultant, you will see why it is imperative.
Financial and legal counselling is big money today. With every IPO and QIP that hits the market, banks, companies and wealthy individuals will make a go at a law firm for advice. Whatever follows-whether the buyer goes bankrupt or emerges with flying colours, whether the market crashes or its sunshine-the counseller stacks up his safe in exchange for his pearls of wisdom.
And what a stack it is! Amarchand acted as counsellers in 43 IPO/QIP transactions, of which 19 were worth more than $100 million. Their transactions included the Coal India IPO, Standard Chartered PLC IDR and PO of Essar Energy PLC. If we take Amarchand's fees at Rs1.65 crore for all 43 transactions, it will come to Rs70.95 crore. Similarly, Luthra would have earned Rs27 crore. However, the report announces that the firms cut their fees 'drastically' for government IPOs this year.
Apart from the Coal India IPO, none created a buzz, and most of them have seen the public react hesitantly. As Moneylife reported earlier, the BSE IPO index has moved only 6%, since its launch on 24th August 2009 to 29th April 2011. However, whatever the outcome, the legal firms have surely profited. And this is money earned during a time when there was a lull.
The markets are picking up again. While no major IPOs are being talked about now, they could surface after some time. The Power Finance Corporation's Rs6,000-crore FPO is scheduled to hit the market soon. Meanwhile, there will be a lot of other places from where the legal firms will get their moolah. After all, advice is for all times, high or low.
According to analysts, FIIs have been pumping funds into India because of its strong growth potential. They feel that in the coming days too, foreign fund houses are likely to infuse money in the Indian bourses
Mumbai: Betting big on the Indian market, foreign fund houses invested $1.61 billion (about Rs7,213 crore) in Indian equities in the month of April, reports PTI.
Foreign institutional investors (FIIs) were gross buyers of shares worth Rs54,174.40 crore, while they sold equities amounting to Rs46,961.10 crore, translating into a net investment of Rs7,213.30 crore, or $1.61 billion, as per data available with capital markets regulator Securities and Exchange Board of India (SEBI).
According to analysts, FIIs have been pumping funds into India because of its strong growth potential. They feel that in the coming days too, foreign fund houses are likely to infuse money in the Indian bourses.
"The FII (segment) has been witnessing inflows in the last two months in India because they (investors) don't have many choices left. Besides, they are taking advantage of the country's growth potential," CNI Research CMD Kishore P Ostwal said.
In contrast, foreign fund houses were negative on the debt market and pulled out Rs17.20 crore. This takes the overall net investment by FIIs into stocks and bonds to a total of Rs7,196.10 crore.
In January 2011, overseas investors had pulled out Rs4,813.2 crore from the stock market. The outflows continued in February too, with Rs4,585.5 crore being taken out from equities. However, the scenario changed in March when they were net investors in equities worth Rs6,749.60 crore.
This has taken the gross purchases of equities in the country by FIIs so far this year to over Rs2.22 lakh crore. After taking into account the outgo of Rs2.17 lakh crore, overseas investors have made a net investment of Rs4,712.60 crore.
Right from the definition of a ‘senior citizen’ for tax evaluation to the definition of a ‘Non-Resident Indian’, our tax and forex laws are full of inconsistencies and discrepancies. It is high time the government removed these lacunae
Our laws—mainly those dealing in economic matters like the Income-Tax (I-T) Act and Foreign Exchange Management Act (FEMA) are flawed, and riddled with inconsistencies. They leave the common citizen utterly confounded.
In fact, when I was having an informal chat with a top bureaucrat, he remarked in a lighter vein that if all our laws were crystal clear, a citizen would not find the need to approach the sarkari babus, who would then become redundant… and sent home! This, he quipped, was the reason behind legal provisions that are often confusing.
Let’s examine a few of the lacunae:
In the first place, the term “senior citizen” is nowhere defined in the Income-Tax Act, 1962. For “senior citizen“ assessees, the Finance Act 2011 has lowered the age for the threshold limit from 65 years to 60 years in Part III of the First Schedule dealing with tax slabs and rates.
The same Act has additionally created a new category of “Very Senior Citizens”—above 80 years. According to a report there are only 15,000 tax assessees in this 80+ age bracket, and one of them will be Manmohan Singhji!
On the other hand, corresponding or consequential changes on the same lines have not been brought in elsewhere in the Income-Tax Act in Section 80D for granting enhanced deduction for premium on health insurance to assessees completing 65 years. Similarly Section 80DDB (allowing deduction for expenses on treatment of prescribed diseases) is also applicable to those completing 65 years. Corresponding changes to lower the age to 60 years in these Sections ought to have been brought about at the same time. This is a glaring flaw, and necessary amendments need to be brought about immediately.
The other grey area is the term NRI (Non-Resident Indian), both in the I-T Act and FEMA (Foreign Exchange Management Act). This term, with its variants ‘PIO/OIC’, (Person of Indian Origin/Overseas Citizenship of India), is freely and very loosely bandied about—both by bureaucracy and citizens. Yet there is no common definition.
The Income Statute classifies assesses into ‘Citizen’, ‘Resident but not Ordinarily Resident’ and ‘Not Resident’ depending upon the number of days of their stay in India and outside India.
FEMA (and FERA—the Foreign Exchange Regulation Act, now repealed) has an altogether different take on the criteria for defining an NRI—it lays down the purpose of the stay outside India, irrespective of the number of days spent outside India. Thus anyone, other than a person staying abroad to pursue business, profession or vocation but on a tour, for studies, prolonged medical treatment or to spend time with family staying there, is not considered an NRI under FEMA, even though he may be an NRI under the I-T Act.
The tax status of staying out has been imported by the Limited Liability Partnership Act. The authorities related to foreign exchange like the Reserve Bank of India (RBI), and the Enforcement Directorate (ED) adopt the FEMA criteria. There are references to non-residents in the Companies Act, too. The FCRA (Foreign Currency Regulation Act) however, refers to “Foreign Citizens”.
The US IRS (Internal Revenue Service) has rightly targeted our diaspora who were trying to get the best of both worlds—residing abroad and not paying taxes on their funds parked in Indian banks in NRE (Non-Resident External)/FCNR (Foreign Currency Non-Resident) Accounts, which are tax exempt. The laws both in the US/UK as well as in India are very clear—declare the income earned anywhere in the world and claim legitimate exemptions/deductions like those provided by the Avoidance of Double Taxation Agreements entered into between the countries of their residence and India.
Since both the taxation and forex statutes fall within the ambit of the legislative jurisdiction of the finance ministry, both these definitions need to be appropriately synchronised. There is no legal justification for applying two differing standards to a same individual.
(The author is a Chartered Accountant and has been an auditor of a number of insurance companies)