Scam-wary foreign investors put Indian firms under close watch

Potential equity investors from the US and UK are asking Indian companies if they have any political exposed persons (PEPs) as co-promoters; any retired government officials or even Army personnel on their boards.

Foreign companies are conducting 'due diligence' before closing any deals, and according to sources in the deal-making circles, many overseas investors are turning down proposals in companies suspect of corrupt practices. In a straight impact, experts say this could make raising foreign equity funding difficult for companies especially in sectors like real estate or natural resources firms, where political meddling typically yields better than superior business model or commercial knack.

“It's more of a smell test,” said Somasekhar Sundaresan, partner at law firm J Sagar Associates, alluding to FDI investors scrutiny of ethical conduct of target Indian client. He said, some FDI deals have fallen through as Indian companies did not pass this smell test. Clients are even engaging basic market intelligence people, private agencies and forensic service providers to carry out an insightful assessment of the target companies, Sundaresan added.

Potential foreign investors have backed out from five large deals in the recent past, mainly due to suspicion on target companies being co-owned by politically exposed persons, a senior corporate lawyer engaged in negotiation of such deals said, asking not to be named. Promoters are being grilled regarding an

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