MSMEs urge urgent govt action to prevent hostile takeovers by Chinese investors

The Prime Minister’s Office (PMO) has received an urgent call for help from medium and small industries who fear possible hostile takeovers from Chinese investors at a time when they are facing survival issues and their valuations have taken a beating amid the Covid crisis.

In a recent letter to the government, small-sized industries want the Centre to temporarily halt FDI through automatic route, which is currently possible for over 1,000 industries, with just 16 sectors, including defence and telecom, requiring government scrutiny.

“We seek your kind guidance and support for protecting the Indian corporate sector from being sold in distress to the Chinese companies, on the prowl,” an industry body, Integrated Association of Micro, Small and Medium Enterprises of India, said in the letter dated April 12.

The industry association claims membership of over 5,000 SMES including automotive part makers across Haryana, UP, Tamil Nadu and Karnataka with turnover of Rs 10 crore and above.

“These companies want support from the government to ensure that they remain going concerns despite production and business taking a hit right now, and have warned that Chinese funds are on a shopping spree right now since asset values are depressed,” a senior government official said. The letter was written to the MSME minister on April 12 and was later sent to the PMO for consideration.

The letter comes even as globally, some countries have made laws to protect weaker companies from being taken over by moneyed Chinese firms. In March last week, the Australian government tightened rules around foreign takeover and investment rules on growing concerns of predatory behaviour by Chinese companies.

With valuations of companies taking a severe hit owing to the Covid-19 crisis, the Australian government will now scrutinize any and all foreign proposals under its foreign investment review board. Until then the country’s foreign investment review board didn’t examine most overseas takeovers of the country’s private companies under a certain threshold.

Last week, Germany followed suit, making it harder for non-EU companies to take over private German firms.

The MSME industry body has sought a similar change from the Indian government. As reported earlier by ET, market regulator, the Securities and Exchange Board of India (Sebi), has already stepped up vigil against China-based funds amid concerns over possible takeovers by them as deep-pocketed Chinese companies — mainly state-owned — have been on the prowl, looking for possible acquisition targets in sectors such as financial services.

The vigil was stepped up after it was found that China’s central bank holds 1.01% stake in HDFC, according to the March shareholding disclosures.

There are an estimated 63.3 million unincorporated MSMEs, employing 110 million people across India. MSMEs contribute nearly 30% of India’s GDP and close to half of the country’s total exports, as per industry estimates

The government on April 17 announced steps to protect the segment by proposing a Rs 10,000-crore “Fund of Funds” which would soon be approved by the government to buy up to 15% equity in these companies with high credit rating that want to list on stock exchanges and raise money from the capital markets.

Source Article