The Covid-19 pandemic, a stern and sensitive public health emergency has brought nearly all the countries around the globe to their knees. India, amidst an ever stretching lockdown and uncertainty surrounding its lifting due to the rising cases of infection along with countries all over the world, have been brutally hit economically, pushing the world towards recession. How individual countries respond to the effects of the virus in the coming weeks will be critical in influencing the trajectory of its economic status.

Covid-19 is most certain to bring challenges for the private equity and M&A. At this time, we may only speculate as to how Covid-19 has and will broadly affect the Private Equity (PE) space.


The recent slump in the Indian economy has created uncertainties concerning PE investment in Indian companies. Most investors have used the 'wait and see' approach until they can be certain of some stability in the market while the others are being particularly cautious in their investment decisions. It is too soon to conclusively decide whether this crisis will lead to a buyer's market or a seller's market. However, we believe that with the market being bearish and potential investors holding onto their cash, the investors will eventually look to leverage on the sharp drop in valuations and get their hands on any asset on sale to seek a higher return on capital in the future.


The crisis has significantly slowed down PE and M&A deals. We all know how the financial crisis in 2008 disrupted deal-making and it is now predicted that this crisis should also trigger new deals to a complete standstill, at least for a short period. The fundamental of any deal making is the valuation of a company and the valuation is the ability to project future financials but at this time nobody can entirely project the long term financials or even FY 21 figures in that case. Financial stability of the company and cash in hand with the investor is the biggest determinant for a deal. The investors having turned vigilant are looking to stabilize their portfolios. Whereas, the sellers are hesitant to part with their assets given the steep drop in valuations. Such a mismatch between the expectations of the buyer and the seller will create a hindrance in deal making. It remains to be seen how quickly the PE space will recover from such market conditions.


In order to contain the spread of the Covid-19 pandemic the Government of India is continuously taking laudable measures.

The Chinese investors have been on a buying spree and are beefing up their positions in the markets all over the world, including India. However, the Government of India in a bold decision vide its Press Note No. 3 dated April 17, 2020 issued by the Department for Promotion of Industry and Internal Trade and a subsequent amendment to the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 dated April 22, 2020 issued by the Department of Economic Affairs, notified changes to the foreign direct investment policy which aims to curb opportunistic acquisition/takeover due to the pandemic, especially from China. The restriction was implemented soon after the People's Bank of China (PBC) raised its stake in Housing Development Finance Corporation (HDFC) from 0.8% to 1.01%.

The restriction now puts all fresh funding from new investors as well as additional funding from a beneficial owner from India's land border-sharing countries (China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar, and Afghanistan) under the approval route which will certainly barricade or at the very least impede any Indo-China deals.

While such a restriction protects the Indian companies from opportunistic takeovers, it may be noted that this policy change requiring blanket approval may not be reasonable as it may hamper the confidence of the Chinese investors in Indian companies which may affect the ease of doing business in India.


Any transaction in the final stage of execution or negotiations is expected to continue but at a much slower pace and some postponed to a later date, to be activated once the crisis subsides. The parties to the transaction will now look to amend their contract(s) to address the new risks in light of the present crisis leading to changes in various clauses, for instance force majeure, indemnity, material adverse change, long stop date, etc.

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Originally published 6 May, 2020

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