There is a sense of déjà vu as the rupee continues its downward march
Alittle over 22 years ago an alarming drop in the rupee forced India to move away from 44 years of self-reliance. This time around there is no evidence that anything quite so radical is being contemplated.
Correcting course now will require a different kind of makeover. For the slide in the rupee is as much about a lack of confidence in the ability of the state to deliver as it is about an unhealthy balance of payments situation. Despite two decades of liberalization, the continuing contradictions and chaos of India continue. Do India’s politicians and bureaucrats have the wherewithal to turn things around?
This issue’s Cover story documents a scenario where a falling rupee is likely to hit some sectors and companies much harder than others. It is widely recognized that companies carrying high levels of foreign debt will suffer, but what is surprising is that many of these companies, particularly those that have raised money through foreign currency convertible bonds, haven’t hedged their currency.
While the fallout from the rupee’s devaluation will be largely financial in nature, in-house lawyers will be keeping their eyes peeled for any law-related challenges that are thrown up in the fracas. Freddy Daruwala, a Mumbai-based partner at Nasikwala Law Office, is well aware of the risks. He warns that there may be legal repercussions “if the government changes tax laws to give exports a boost, or if borrowers default on payments”.
Be that as it may, the top priority for many Indian companies will be to renegotiate the terms of their international debts. While some will do this successfully, others will inevitably fail, giving rise to the need for complex restructuring exercises.
One such exercise is the subject of this issue’s What’s the deal?. Suzlon, the world’s fifth largest wind turbine maker, recently underwent a complex financial makeover that was crafted by lawyers both inside and outside India. The company had amassed debts of more than US$2 billion, partly as a result of failed negotiations with foreign lenders to amend terms of foreign currency convertible bonds to the tune of US$220 that were due late last year.
The corporate debt restructuring package included the issue of credit-enhanced US dollar bonds backed by a standby letter of credit from Suzlon’s key funder, State Bank of India (SBI). As a result, the bonds were rated with the same credit rating as SBI’s debt, giving Suzlon “much needed headroom via low cost funding” as Kirti Vagadia, the company’s group head of finance, explains. As a falling rupee prompts companies to take a fresh look at their finances, they will undoubtedly learn from Suzlon’s experience.
Arguably the most high-profile casualty of the current downturn in India has been the level of inbound foreign direct investment (FDI). In an attempt to get things moving again, the government recently announced a series of liberalizations to foreign investment caps and requirements in several key sectors. The reforms, which are covered in this issue’s News and in a Practitioner’s perspective by Rukshad Davar of Majmudar & Partners, have been broadly welcomed by observers. But not everyone agrees that greater levels of FDI are the answer to India’s problems.
Writing in this issue’s Vantage Point, Dharmendra Kumar, the director of India FDI Watch, says that as far as foreign investment in retail is concerned, the government must actively protect the weaker links in the supply chain instead of relying on large retailers to do so.
In the first of this issue’s Spotlights we turn our attention to one of India’s most powerful quasi-judicial forums – the Intellectual Property Appellate Board (IPAB), which over the past three years has grown into a force to be reckoned with. However, the person largely responsible for this rise in stature, the IPAB’s former chairperson Justice Prabha Sridevan, recently retired. Our coverage details some of the IPAB’s key achievements while Justice Sridevan was at its helm and asks if it can still be expected to stir up a storm without her.
Justice Sridevan’s legacy points to one of the essential truths about India: individuals really can make a difference. More evidence of this can be found in our profile of in-house lawyer Ish Bali (Keeping a steady hand). Bali is the director of legal at Coca-Cola India, a company that has just seen 28 consecutive quarters of growth. In a freewheeling conversation with India Business Law Journal, he reveals how he runs a tight ship, albeit with some help from the larger Coca-Cola family and the occasional external lawyer. In a sign of the times, Bali says he only calls on external lawyers when subject-matter specialists are needed or if he has too much work on his hands. In an environment of corporate belt-tightening, it is likely that in-house lawyers up and down the country share these sentiments.
It is against this backdrop that India Business Law Journal presents its sixth annual edition of the India Business Law Directory, which we believe is the most extensive directory of Indian law firms available. As in previous years, the directory is accompanied by in-depth editorial analysis of the state of play in India’s legal market.
With corporate legal budgets under pressure, our coverage reveals that law firms are feeling the pinch. And while this may present an opportunity for small nimble firms to grab additional market share, India’s larger firms that have more mouths to feed are likely to struggle. No doubt they will find a way through the crisis, but chances are India’s legal market will not look quite the same when they reach the other side.
