The transactions of private equity (PE) firms like Merrill Lynch, Citigroup and Goldman Sachs may soon be subject to close scrutiny by the Competition Commission of India (CCI), the nodal body for looking into anti-competitive practices. The CCI has said it would step in if investments by a PE firm in a sector led to cartelisation that crippled competition.
?What we are concerned about is whether PE investments in two or more companies in the same sector is leading to anti-competitive practices,? CCI member Vinod Dhall told FE. However, he maintained that it would not interfere in the investment strategies of PE firms. The CCI will also not monitor passive investments made by these firms where they are not interested in taking control of management.
There are around 250 PE funds operating in India, which have invested over $10 billion in this fiscal so far. The real estate and telecom sectors are the major parking spots for their funds. At the same time, the primary equity market until September has seen fund-raising of slightly over $3 billion. The stand by the CCI is therefore significant, as PE investment has become the preferred route for a large swathe of Indian companies.
According to experts, the CCI would have to develop modalities to determine what constitutes abuse of dominant power by a PE or any other investment fund in a sector. For instance, more than half the total investments by PEs are in unlisted companies. This often helps such firms get significant stakes in listed companies.
Vikesh Mehta, partner (corporate advisory services), Grant Thornton, said, ?The end objective of this strategy is to consolidate presence in a sector and, therefore, increase dominance. This is great for the investors of the PE but can have an adverse impact on the marketplace and the final consumer, especially in sectors dominated by a handful of players.?
Subir Gokarn, chief economist at Standard & Poor?s Asia-Pacific, however, differed. He said ownership, even of competing firms, is not sufficient enough for CCI to look into such cases. ?Dominance or monopoly per se is not the issue, but abuse or misuse of dominance is, whether it is through PEs or through a holding company structure.?
He acknowledged that the CCI could use its mandate to step in, if it felt so. ?There need not be a complaint as CCI has suo motu powers. But even then, it has to have a basis that the customer is not being given a fair deal by the dominant player in the sector,? he added.