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The Competition Commission of India approves the acquisition of 10.39 percent equity share capital in Annapurna Finance Private Limited by Piramal Alternatives Trust. The proposed combination includes the share acquisition and a debenture subscription. The entities exhibit horizontal overlaps in retail loan segments and a vertical interface in microfinancing credit facilities. The Commission concludes that the combination does not create an appreciable adverse effect on competition in India. The approval applies under Section 31(1) of the Competition Act, 2002.
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COMPETITION COMMISSION OF INDIA
Combination Registration No. C-2024/01/1108
2nd April 2024
Notice under Section 6(2) of the Competition Act, 2002 given by Piramal Alternatives Trust acting through its trustee Piramal Alternatives Private Limited
CORAM:
Ms. Ravneet Kaur
Chairperson
Mr. Anil Agrawal
Member
Ms. Sweta Kakkad
Member
Mr. Deepak Anurag
Member
Order under Section 31(1) of the Competition Act, 2002
On 31st January 2024, the Competition Commission of India (Commission) received a Notice under Section 6(2) of the Competition Act, 2002 (Act) given by Piramal Alternatives Trust (Piramal Alternatives/Acquirer)) acting through its trustee Piramal Alternatives Private Limited (Piramal Alternatives Trustee).
The Notice has been given pursuant to the execution of the following documents:
Combination Registration Number: C-2024/01/1108
Amended and restated Shareholders’ Agreement executed inter alia amongst Annapurna Finance, Mr. Gobinda Chandra Pattanaik, Mr. Dibyajyoti Pattanaik, Piramal Alternatives, and shareholders of Annapurna Finance on 24th January 2024 (SHA);
Debenture Trust Deed executed between Annapurna Finance and Piramal Trusteeship Services Private Limited (PTPL) on 22nd January 2024; and
Debenture Trustee Agreement, executed between PTPL and Annapurna Finance on 22nd January 2024.
The notifying party vide communications dated 9th February 2024 and 5th March 2024 issued under Regulation 14 of the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 (Combination Regulations) was required to remove defects from the Notice and furnish certain information relevant for the purpose of assessment of the proposed combination. The notifying parties furnished their responses vide submissions dated 16th February 2024 and 8th March 2024.
The Proposed Combination envisages the acquisition of 1,25,00,000 shares amounting to 10.39% of the equity share capital of Annapurna Finance, on a fully diluted basis, by Piramal Alternatives (Share Acquisition) from certain existing shareholders of Annapurna Finance. It is also envisaged that Piramal Alternatives shall subscribe to certain debentures (Debenture) of Annapurna Finance (Debenture Subscription). Piramal Alternatives shall be entitled to nominate one director on the board of Annapurna Finance subject to the prescribed minimum shareholding requirement. Piramal Alternatives shall also be entitled to nominate one individual to be its observer at all meetings of the Board of Directors of Annapurna Finance and its certain committees.
Piramal Alternatives is engaged in the business of fund management. It provides customised financing solutions to high-quality corporates through 'Piramal Credit Fund'
Combination Registration Number: C-2024/01/1108
It has been submitted that Piramal Alternatives belongs to Piramal Enterprises Limited (PEL), which is a part of the Piramal Group1 (Acquirer Group). The Piramal Group has two separate listed entities i.e., PEL and Piramal Pharma Limited (PPL). PEL is licensed as a Non-Banking Financial Company (NBFC) by the Reserve Bank of India (RBI) and has presence in the business of retail and wholesale lending, alternative funds (through Piramal Alternatives) and life insurance. In the retail lending business, PEL, through Piramal Capital and Housing Finance Limited (PCHFL) provides secured and unsecured loans. Secured lending includes housing loans (i.e., affordable housing, mass affluent housing and budget housing), secured MSME loans against property and other secured loans (primarily pre-owned car loans). Unsecured lending includes salaried personal loans, microfinance loans, unsecured business loans, digital purchase finance and digital personal loans.
It has been submitted that there is only one shareholder of PEL viz., Shri Krishna Trust, having 35.11% shareholding on 31st December 2023 that meets the materiality thresholds. Shree Krishna Trust does not have any activities or investments in any companies which overlap with the activities of Annapurna Finance, either horizontally, vertically or complementarily.
Annapurna Finance is a non-deposit taking non-banking financial company (NBFC) registered with the RBI under the Reserve Bank of India Act, 1934. It is classified as an NBFC - Micro Finance Institution (NBFC-MFI). The primary objective of Annapurna Finance is to provide access to capital to the poor, and small and medium entrepreneurs (i.e., individuals who, at the time of enrolment, are financially impoverished as a result of low income and lack of financial resources).
1 It has been submitted that the term “Piramal Group” has been collectively used to refer to PEL (the ultimate holding company of the Acquirer), Piramal Pharma Ltd., Piramal Realty, Piramal Foundation (which are the other holding companies forming part of the group).
Combination Registration Number: C-2024/01/1108
Annapurna Finance is engaged in the business of microfinance that offers a variety of financial and non-financial products and services. Loan-related products of Annapurna Finance includes: (i) Home/housing loans, (ii) MSME loans, (iii) Consumer durable loans, (iv) Personal loans, (v) Loans to street vendors, (vi) Group loans, (vii) Mid-term loans, (viii) Loan to marginalized segment, (ix) Loans for installation of safe water and sanitation infrastructure, (x) Dairy development loans, and (xi) Loans for installation of solar panels.
Annapurna Finance and subsidiaries/affiliates of the Acquirer Group exhibit horizontal overlaps for the provision of loans in India. Within the business of provision of loans in India, their activities exhibit overlaps in the segments of retail loans. In the segment of retail loans, their activities exhibit overlaps in the sub-segments of housing and home improvement loans, MSME loans, consumer durables loans, microfinance loans, and personal loans. Based on the submission of Piramal Alternatives, it is noted that the combined market share of the overlapping entities in the aforementioned segment and sub-segments is less than 1% except for microfinance loans. For the microfinance loans, the combined market share of the overlapping entities is [0-5]% with incremental market share being less than 1%.
With regard to the vertical interface, it has been submitted that the Acquirer Group is engaged in the business of provision of credit facilities for microfinancing in India, whereas Annapurna Finance is engaged in the business of the provision of loan and lending services. Therefore, the activities of the Acquirer Group and Annapurna Finance exhibit a vertical interface. In this regard, the Commission observes that the presence of the Acquirer Group and Annapurna Finance is not significant enough to raise any competition concerns.
It is observed that regulation 9(4) of the Combination Regulations provides that where the ultimate intended effect of a business transaction is achieved by way of a series of steps or smaller individual transactions that are inter-connected, one or more of which may amount to a combination, a single notice, covering all these transactions, shall be filed by the parties to the combination. Since the Debenture Subscription is inter-connected to the Share Acquisition, Piramal Alternatives was required and has
Combination Registration Number: C-2024/01/1108
accordingly notified both the Debenture Subscription and the Share Acquisition under the Notice.
With regard to the Debentures, it has been submitted that these shall be convertible into equity shares of Annapurna Finance only with the mutual agreement of the debenture holder and Annapurna Finance.
With regard to the “Debentures”, it is observed that in terms of the provision of Section 2(v)(i) of the Act, any security which entitles the holders to receive shares with voting rights is considered as “shares”. In terms of section 2(v)(i) of the Act, there should be a “security”, security should entitle “to receive shares with voting rights”, and entitlement should lie with “the holder of security”. If all of the said three elements are satisfied, then in terms of provisions of Section 2(v) of the Act, the securities are “shares”. In the instant matter, the holder of the “Debentures” can convert them in equity shares viz., shares with voting rights, of Annapurna Finance only subject to “mutual consent” of Annapurna Finance. Thus, the entitlement to receive shares with voting rights would arise only after the consent of Annapurna Finance. In view of the above, the instruments viz., the Debentures are not “shares” in terms of Section 2(v)(i) of the Act. Therefore, the Commission does not consider the Debenture Subscription as an acquisition of “share” for the purpose of its approval under section 31 of the Act. The requirement of notice under section 6(2) of the Act in relation to the acquisition of shares pursuant to conversion of the Debentures shall be determined as per extant law before such conversion.
Considering the material on record, including the details provided in the Notice and the assessment of the Proposed Combination based on the factors stated in Section 20(4) of the Act, the Commission is of the opinion that the Proposed Combination is not likely to have any appreciable adverse effect on competition in India. Therefore, the Commission approves the Proposed Combination under Section 31(1) of the Act.
The order may be revoked if, at any time, the information provided by the notifying party is found to be incorrect.
