In an interview with CNBC-TV18's Menaka Doshi, CCI chairman Ashok Chawla promised faster clearance of M&A deals and offered a glimpse into the pending revisions in merger control regulations
The Holcim-Lafarge deal is close to getting final approval from the Competition Commission of India (CCI), CCI chairman Ashok Chawla said.
In an interview with CNBC-TV18's Menaka Doshi, Chawla promised faster clearance of M&A deals and offered a glimpse into pending revisions in merger control regulations.
The global merger of Holcim-Lafarge had run into a CCI hurdle. The Indian competition regulator cleared the India leg of that merger on the condition that Lafarge divest assets in eastern India — specifically the Sonadih cement plant and the Jojobera grinding station, totalling approximately five million tonne of cement capacity. Lafarge-Holcim had in fact struck a deal with Birla Corp to sell the two plants for about USD 760 million. But the deal hasn't gone through because government policy doesn't allow transfer of mining lease that was allocated and not won in auction.
When asked what happens if government policy prohibits parties from fulfilling an asset sale ordered by CCI, Chawla said Lafarge-Holcim have come back with a revised proposal. "This is something which is more like black swan event. It is not going to happen every day. It happens very rarely. It happened in this particular case that you are referring to because at one point in time we gave out the order on structural remedy and around the same point in time may be slightly later or so the Mining Act was amended."
The company has now withdrawn the earlier proposal to sell two assets and put a proposal which is more comprehensive, which covers this particular area where issues had emerged from the competition point of view. "So, we are examining that. I presume we will have no objections as long as this part is taken care of and it becomes a wider proposal," Chawla told CNBC-TV18.
"If they go beyond that and sell assets more than X and Y, I presume we can have no objection as long as X and Y go out of their management control and go to somebody who is not otherwise dominant in that region. So, our concern was only that," he added.
Looks like Lafarge will be selling more Indian assets than earlier anticipated. The buzz is that the entire Lafarge India business may get sold.
The outgoing chairman of CCI also said that CCI was working to reduce the time taken to clear merger filings. When merger control regulations were first applied, a merger filing took an average 29 days to clear. That has now gone up to 55 days. And given the recent surge in deal activity, delays were indicative of a pile up. Chawla said approval time will soon come down to 35 days.
"We are now in the process of changing our operating procedure at the level of the officers who examine this. To be able to bring down in the vast majority of the cases, which may really have no major competition concerns, to back to the 30-25 days or so that we used to take earlier and it is only in the maybe 10 percent odd cases which require detailed attention that we will need to take more time," Chawla said.
In the next 3-6 months, a clear change from what has happened will emerge. "Why it has happened is that there were many more filings which were taking place. People were trying to go into details in respect of cases where perhaps there was no great need for intensive study. So, we have brought in a number of changes. We have brought in engagement with parties at the level of group of members, etc., which would enable that the larger perspective is seen before the matter comes to the full commission for a decision," Chawla explained.
CCI is also revising for the fifth time in five years its merger control regulations. Chawla hinted at impending changes!
"There are issues which have come up in terms of who is authorised to file a merger notification particularly in relation to multinational companies, when should a notice be invalidated, should parties be heard before invalidating or not. So, these are questions which have bothered the companies which file under intermediaries and we hope to resolve many of these issues in this round of change of regulation which is ready and is just going to be notified in the next few days," Chawla said.
"But surely if filing is absolutely way off track and doesn't really deserve to be filed, if it is just a sheet of paper which doesn't contain anything let us say, you don't want us to say no, we will not even invalidate that. So, that provision should remain with the regulator. What we are trying to ensure, so that there is no undue hardship, what we are trying to ensure is that it is not used casually, that it is not used without giving adequate opportunity to the parties that file and that we believe is a reasonable and fair middle ground," he added.
These revisions are expected in the next 48 hours — before he leaves office.
Below is the verbatim transcript of the interview..
Doshi: I am going to start by talking about merger control regulations which came into force around the same time that you took over at the CCI and in that period of time you all have cleared over 365 merger filings and only in three cases have you asked for any remedies. For your assessment of how the merger control regime has run so far?
Chawla: As you mentioned we have handled close to 400 cases so far but a lot of the cases which have come and there are reasons for that a lot of the cases have been those which involve intra-group restructuring, sale of equity etc which without much impact on the competitive landscape. So, we therefore not felt the need to go in detail into many of those cases and it is only in a few of those that we have delved deep.
Doshi: Would you say that the current merger control regulations are good enough to deal with both the influx of cases and the type of cases coming into the CCI or would you call for changes to the merger control regulations. You had already told me in a previous interview that we did in the middle of last year that in fact the exemption threshold for target enterprises expires in March 2016, i.e. the notification regarding that comes to an end in March 2016, can we expect to see some changes when it comes to exemption thresholds?
Chawla: The exemption thresholds and the notification that you are talking about is something which the government handles. They do consult us and it will be a call which of course the government will take at the end of the day but looking into the fact that business and industry need a shot in the arm that the ease of doing business is very critical for the Indian economy at this stage and the government is focussing on that. I would think that there is perhaps a case for the notification and the exemption which it brings in its wake to continue for some more time. That is also useful from the point of view of the competition commission. In that it will give us the bandwidth and the time and energy to focus on cases which are really big and important.
Doshi: In your opinion do you think that there is a case to be made for enhancing the exemption limits thereby asking for fewer transactions to come to the CCI in the case of merger control?
Chawla: It may not be a bad idea, I agree.
Doshi: In the last 4 years we have seen 4 revisions to merger control regulations, the last one being in the middle of last year which was 2015 and from what I understand a fifth one is already in the offing. What I hear is that this 5th set of revisions might pertain to introduced in the last round which has to do with invalidation. However before I get to invalidation let me ask you an open ended question, what is it that you are hoping to rectify in this 5th round?
Chawla: Each round of modification and changes to the regulations we have attempted to make the process more user friendly. So, that philosophy induced the 5th round which as you said is in the works and is round the corner. So, there are issues which have come up in terms of who should be filing the or who is authorised to file a merger notification particularly in relation to multi-national companies, when should a notice be validated, should parties be heard before invalidating or not. So, these are questions which have bothered the companies which file and they are intermediaries. We hope to resolve many of these issues in this round of change of regulations which is ready and is just going to be notified in the next few days.
Doshi: It is interesting that you are looking to revise the invalidation provision because when you introduced it, when you introduced the concept in the draft merger regulation amendments last year there was a considerable amount of criticism. I had put that to you in a previous interview when we spoke of it and you had said that the philosophy or objective behind this is very often we get filing which are incomplete, which do not give the entire picture. So, there is a lot of to and fro between our people and the CCI and companies or their lawyers who have filed. So, what we really want is the there should be a little bit more rigour and discipline in the filings which take place. You have defended the idea of introducing invalidations. I am told since then there have been about 18 merger filing that have been invalidated and you are now reviewing invalidation? Would you consider doing away with altogether or amending the provision to allow for let us say more clarity as to what would be invalidated or more clarity on how hearing regarding invalidation would proceed?
Chawla: We thought that invalidation was necessary so that we could bring in more rigour and discipline in the fillings that take place and the commission and its officers get the kind of material which they need to able to concentrate and focus quickly in a case. We found that very often it tends to get into a different loop and sometimes invalidation takes place may be where it is not entirely necessary etc. There were protests then, there are protests now. So, while we are retaining the provision what we do want to ensure is that we give the parties a hearing so that they know what our view point is and if they are going to correct it and remedy it immediately then that process, that burden is lessened for them.
Doshi: But that was the feedback that you all got last year when you attempted to introduce this provision and you didn't put it in then. So, I am just curious to know why it has taken six months to recognise that some of the concerns raised about invalidation were fairly legitimate concerns?
Chawla: But shouldn't you be happy that the regulators at least have taken notice of that in a reasonably short period of time of six months and realise that yes, this is reasonably fair.
Doshi: The other thing that I am told might come up for consideration when you look to amend the merger control regulations is more clarity on filing triggers?
Chawla: There will be clarity on what is the trigger point in terms of the other document but on market transactions and whether they form part of the transactions as a whole and whether it is linked in any manner etc will necessarily depend on the facts and circumstances of each case.
So, where it is in preparation of and it is integral to the overall transaction then it will be taken as something which should have served as a trigger. So, I don't think there can be very clear boxes to determine these kind of things. Very often it will depend on what the facts are.
Doshi: Could you elaborate on what clarity we can expect on the other documents that might serve as filing triggers?
Chawla: We have a provision which says that if they have notified to any of the other regulators etc then that serves as a trigger. There is a proposal to amend that and reduce it to only one of the triggers relating to the transaction in relation to the market interests where the minority investors are concerned. So, probably we will stick to that but I will still request that please wait for the final version to come out.
Doshi: I want to come back to the two instances in merger control where the CCI has ordered structural remedies. The first one was a Sun Pharma-Ranbaxy transaction and the second one was the global merger of Holcim and Lafarge which had implications in India. Now, interestingly in the Lafarge situation CCI has ordered the divestment of certain assets to remedy the ill effects of this global merger. But government policy is proving to be a hurdle in the ability for the company to be able to sell those assets because the plants cannot be sold with the mining leases because the transfer of such mining leases is currently not permitted under government policy. Thereby, in short, the structural remedy that CCI directed is proving to be at this point in time difficult or impractical to adhere to. I am asking for your views not specific to this case but otherwise on what happens when CCI asks for a structural remedy that somehow government policy makes difficult to fulfil?
Chawla: Whether it is this case or any other case, if it so happens that by the time we give out a structural remedy which is an order of the commission but that is pre-empted so to say by a legal change then obviously the parties will have to comply with the legal change which is the situation in this particular matter.
This is something which is more like black swan event. It is not going to happen every day. It happens very rarely. It happened in this particular case that you are referring to because at one point in time we gave out the order on structural remedy and around the same point in time may be slightly later or so the mining act was amended. So, these kind of situations don't arise in normal cases. They have arisen in this case and I think the process on the part of the company to come back with an alternative proposal is already on the table. So, that is not a major issue but to go back to your point which is a larger issue the law of the land which may change necessarily has to be kept in mind in terms of application.
Doshi: So, will it be fair for me to assume and understand based on your response that CCI is reviewing the structural remedy that it had ordered in this matter based on what the party has sort of offered as an alternative?
Chawla: Yes, we are in the sense that the earlier proposal was to sell two assets, then the company has withdrawn that and put a proposal which is more comprehensive, which covers this particular area where we had issues from the competition point of view. So, we are examining that. I presume we will have no objections as long as this part is taken care of and it becomes a wider proposal on the part of the company which has been asked to divest.
Doshi: Could you share some more details with us because what you asked for was the divestment of certain assets in those regions or markets where you thought that the combination might in fact lead to anti competitive behaviour. What is it that they are proposing to do that might nullify the concern of your without actually in fact selling off those particular plants that you had ordered sold?
Chawla: If they go beyond that and sell assets more than X and Y, I presume we can have no objection as long as X and Y go out of their management control and go to somebody who is not otherwise dominant in that region. So, our concern was only that and if that is met but they go beyond that specified threshold I suppose there cannot be any objection conceptually.
Doshi: For now I want to move to what is often referred to in competition law jargon as behavioural cases. I am going to start by asking you for your assessment on how the CCI has fared in acting against both abuse of dominance as well as cartel matters?
Chawla: We have made a reasonable start but I think we perhaps could have done better and maybe we should be doing better in the years to come. Let me elaborate by saying that partly not too many substantive major cases have been brought to our notice. Number two, given our constraints we haven't been able to generate good cases, robust cases suo moto which the law does allow us to do.
Thirdly, we have in the cases that have come taken quite a bit of time in terms of the investigation at the level of director general and then once the judicial process takes over which has its own dynamism, it has taken quite some time. So, therefore I would say that both in terms of the complaints or information which have come to the commission in behaviour cases we have not been particularly lucky or we haven't received too many and our quality as well as perhaps the speed has not been what it should be in the years to come. May be this is a symptom of the teething troubles which a new organisation or body goes through. Perhaps the time is now ripe for this to move on to the next stage.
Doshi: What would you mean by teething troubles? Why is it that you have not been able to initiate as many cases suo moto as you would have liked?
Chawla: The law does give us the flexibility to find and generate cases on our own if we feel that there is a matter which needs to be looked into, but given the fact that we are quite stretched as it is in terms of the internal capacity and certainly the investigation capabilities, the number of suo moto cases have not been more than 5-10 percent of the total number of cases.
While the suo moto cases are no substitute for what should normally be coming from parties which are affected, they can contribute to that stream. So, on both sides even the fillings that take place are totally inadequate for a country of the size of India, for a USD 2 trillion economy, for the fact that there are lots of businesses which I presume are suffering from various dimensions of anti-competitive behaviour be it agreements, cartels or unilateral conduct of major companies but cases don't seem to be coming.
Doshi: But one thing I know lawyers credit you with is the issue of competitive neutrality. One lawyer told me that ever since Mr Chawla has taken over there has been no discrimination between public and private sector, that they are both treated on a level playing field and that is exemplified by the penalty that you imposed on Coal India, the Rs 1,800 crore penalty almost and the subsequent orders that you have made against public sector organisations, how difficult has that been, because this is a country in which the government is very involved in the business of business?
Chawla: That in fact is nice to hear a lawyer say something good about a regulator. It doesn't happen every day, so, thanks for that. But on a serious note I don't think it has been difficult at all. The law very clearly allows us to go into every area, whatever be the pattern and structure of ownership and where we have found that there are serious matters where there is reasonable amount of evidence which is available we have taken action and the commission has not been either shy on its own or restrained by any kind of signals anywhere in pursuing the agenda on competitive neutrality. In fact if we don't go down that route then whatever little credibility we are trying to build up will fall by the wayside because then people will say that this commission is active and aggressive only when it comes to private corporate sector but when it comes to government ownership it sort of holds its hands and that is no good.
Doshi: In your experience over the last five years have you found that the government owned organisations are as much violators of competition law and competition policy as the private sector or in fact they may be even worse because in many sector which the government is present in it has a dominant position?
Chawla: Yes, I would say they are as much violators, perhaps even more for two reasons. One, some of them still don't really understand that there is a competition law and that there are competition principles which need to be adhered to. More than that a small minority probably also feels that okay, even if this is the law and this is something that they should not be doing but they kind of have the blessings of the state, this has gone on for years. So, what is going to happen, nothing is going to change. So, we continue to do business as we were doing and there will always be somebody standing behind us who will sort of protect us. So, for that reason they are as much defaulters if not more than their friends and colleagues on the other side of the fence.
Doshi: I do want to come to my final theme and that is institutional capabilities and processes. The first one I am going to talk about is the average time taken whether it is for merger, filling clearance or even cartel cases which I am told are often delayed. Now in merger filing clearances I am told that the average time CCI used to take at the beginning of the imposition of the merger control regulations was about 29 days. You yourself have alluded in a previous answer that, that timeline has now stretched to about 55 days. In your amended regulations you have bought yourself 60 days. What has gone wrong, why is it taking so much more time and should we be worried because now the burden of the number of M&A cases coming to the CCI has increased. In fact your office has put out numbers that show that the number of fillings has increased every single month over the last several months?
Chawla: We are now in the process of changing our operating procedure at the level of the officers who examine this to be able to bring down in the vast majority of the cases which may really have no major competition concerns to back to the 30-35 days or so that we used to take earlier and it is only in the maybe 10 percent odd cases which require detailed attention that we will need to take more time. So, you should watch this space and in the next 3-6 months you will see a clear change from what has happened and why it has happened is that there were many more filings which were taking place. Our people were trying to go into details in respect of even cases where perhaps there was no great need for intensive study. So, we have brought in a number of changes. We have brought in engagement with the parties at the level of group of members etc which would enable that the larger perspective is seen before the matter comes to the full commission for a decision.