The deal, a two-part transaction, is a combination of fresh equity infusion and a buyout of EILSF, which invested $30 mn in Gland Pharma in 2008
Putting an end to a contentious issue between various ministries, the Union Cabinet cleared the $400-million foreign investment proposal by a global buyout fund, KKR, at its final meet on Tuesday.
The deal, a two-part transaction, is a combination of fresh equity infusion and a buyout of Evolvance India Life Science Fund (EILSF), which invested $30 million in Gland Pharma in 2008.
KKR proposed to buy a 37.98 per cent stake in Hyderabad-based Gland Pharma, which develops and manufactures generic injectables, primarily in the cardiovascular and orthopaedic segment.
The transaction would also involve a 29.4 per cent share purchase in Gland Celsus Bio Chemicals from an existing investor. The Cabinet cleared both proposals.
These were stuck for some time, following differences between ministries on the foreign direct investment (FDI) norms for the pharmaceutical sector. The commerce and health ministries were advocating a lower limit on investment in existing drug making units, along with various safeguards for acquisition of domestic critical care pharma companies by multinational firms. The ministry of finance and the Planning Commission have been favouring faster clearance, to keep investors interested.
Another key area of concern was a non-compete clause, which the cabinet decided last year to waive while allowing foreign investment in the pharma sector. This would mean domestic companies divesting stake in their drug manufacturing business can continue to compete with separate ventures in the sector.
Currently, the government allows 100 per cent FDI in both new and existing drug manufacturing companies. While investments in new ventures are allowed through the automatic route, those in existing facilities are required to take approval from the Foreign Investment Promotion Board (FIPB).
KKR’s proposals for investment were approved by FIPB in February and recommended for the Cabinet Committee on Economic Affairs, as the investment involved was above Rs 1200 crore. It is learnt the proposals were taken up by the government during its cabinet meet earlier this month as well but a final decision was deferred due to the differences.
The government’s policy on allowing FDI in pharma has been a contentious issue between ministries for the past five years. From time to time, the Prime Minister had to intervene to resolve these. In fact, before the government finalised its stand on the policy last year, various FDI proposals in the sector were delayed because of these differences.
Later, with intervention from the Prime Minister, the government decided to clear a proposal for a $1.8-billion investment proposal by US generic drug maker Mylan Inc to acquire Strides Arcolab’s injectible unit, Agila Specialities.
Source: Business Standard
