RBI proposes 70% cap on financing...

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ITALSO SAID that the aggregate exposure of a bank towards acquisition financing shall not exceed 10% of Tier-1 capital and proposed that the financing can be extended directly to the acquirer or to a step-down SPV set up for acquisition.

It said that the acquirer should be a listed firm with a record of satisfactory networth and profits for the past three years. Also, the target company and the acquirer should not a related party. Further, the acquisition value of the target company shall be determined by two independent valuers. The post-acquisition debt-to-equity ratio at the acquiring company or the SPV/target company will be subject to 3:1.

As collateral, the bank will have shares of the target company as primary security, and assets of the acquirer and/ortarget company or other securities held by the acquiring company, may be taken as collateral security as per the bank’s policy.