Companies are faster towards mutual funds with the aim of raising money for their merger-acquired deal as banks have to face all the restrictions in lending for such deals.
According to market participants, mutual funds have helped in providing funds for all deals such as Mainkind Pharma acquisition of Bharat Serums and Vaccines, acquisition of Glenmark LifeSians by Nirma and Tata Consumers.
Due to the rules of the Reserve Bank of India (RBI), there are limitations for banks in providing loans of such deals. Fund managers believe that many loan letters will come in the market due to the approach of companies towards other means to raise loans. The deals due to the acquisition and corporate bankruptcy cases of consumer companies will give impetus to this trend in the future.
Debraj Lahiri, fund manager of Bandhan Mutual Fund, said that the loan and equity in funding for acquisition deals is decided by the company’s management on the basis of the case. It depends on the needs of the company and the current capital structure. But the companies planning for the acquisition have now started turning to the capital market to raise money, including mutual fund loan schemes.
According to Lahiri, interest rates on foreign exchange loans are low but if foreign assets are not acquired and the cash flow of foreign exchange is not sufficient, then hedging costs are also added to it.
Mahendra Kumar Jaju, Chief Investment Officer (fixed income) of Mirai Asset Investment Managers (India) said that some companies have raised a huge amount from the bond market for merger. He said that during the upcoming quarters, it is expected to show up.
Mainkind Pharma had raised more than Rs 5,000 crore by issuing a loan letter for the acquisition of Bharat Serum and Vaxins. Similarly, the Nirma Group of Ahmedabad raised 3,500 crore by issuing bonds to help raising money for the acquisition of Glenmark Life Sciences. The deal helped the group improve its presence in the drug field as Glenmark activates active pharmaceutical ingredients (APIs). The Tata Consumer had raised about Rs 3,500 crore by issuing commercial letters for the acquisition of Organic India, a company that makes all the products including Chings Secrets, Capital Foods and Herbal Supplement and Tea.
There was no response until the news of the email sent to Mankind Pharma, Nirma and Tata Consumer.
This trend is visible at a time when the merger deals in the Indian market have been recorded in the Indian market after the Kovid epidemic. In the last 5 years till 2019, there were about 1,822 deals every year. But in a period of 5 years since 2019, the figure rose by about 54 per cent to 2,806 deals annually. According to Sumam Chopra, partner and chief (private equity and merger in India) of Management Counseling firm Kyrney, midcap companies are also showing great activeness in merger.