The acquisition of the e-commerce rivals Flipkart and Snapdeal has been in the news since March this year. Flipkart, valued at $11.6 billion in April, will be taking over the troubled e-commerce site Snapdeal to increase potential sales.
But the acquisition now faces another bump on the road as the deal will now have to face Reserve Bank of India rules on foreign exchange as the holding company Flipkart Pvt Ltd is domiciled in Singapore.
The $700 million to $1 billion acquisition now has to be specifically structured to protect the interest of Snapdeal shareholders while not violating Foreign Exchange Management Act (FEMA) rules. The proposed deal provides the Snapdeal shareholder Flipkart stock but will require special permission from RBI, otherwise, the transaction could be considered to be in violation of FEMA rules.
RBI has sought explanations from various pharma and manufacturing companies whose foreign subsidiaries have raised funds to invest in Indian firms. Similarly, they also question cross-border transactions with residents owning shares of an overseas company that also has a stake in an Indian company.
Snapdeal’s local shareholders include Ratan Tata and personal investment arm of Azim Premji, PremjiInvest. PremjiInvest has a 1.17% stake in Snapdeal with an investment of about Rs. 152 crore and shareholders not represented on the board own nearly 40% of the company. Assent from the minority stakeholders of Snapdeal will be required for their sale to Flipkart.