Leveraged Buyouts In India: Regulatory Barriers And Corporate Restructuring
- IJLLR Journal
- Aug 30
- 1 min read
Kavya Agrawal, BBA LLB, Jindal Global Law School, Sonipat
ABSTRACT
Leveraged Buyouts (LBOs) are widely recognised as successful restructuring technique. These transactions include acquiring a target firm primarily through debt financing secured against its assets and cash flows. However, a number of regulatory obstacles severely restrict domestic LBO activity in India. Under the right regulations, LBOs can increase productivity and boost shareholder value in India’s corporate world. However, their success depends on striking a careful balance between strict debt management and protecting minority shareholders. The paper explains what are LBOs and the case study of Tata Tea’s acquisition of Tetley one of the biggest cross border acquisitions. The paper also delves into how LBOs are effective for corporate restructuring. The Indian regulatory environment, which prohibits leveraged finance for domestic acquisitions, is then critically examined. This includes a careful examination of guidelines and circulars issued by the RBI from time to time along with FIPB Press Note 9 (1999), and Section 67(2) of the Companies Act, 2013. The paper also demonstrates how domestic corporations have so far chosen offshore targets in order to get around these stringent restrictions. The paper concludes with recommendations and calls for changes in regulations, like reviewing Section 67(2) of the Act. Amendment in the said section along with growing the domestic corporate debt market, will enable India to fully tap the potential of LBOs.
