Competition Commission to study ownership patterns of PE investors

CCI wants to gauge the 'common underlying incentive and motivations' of a private equity player behind PE investments

Rising private equity investments in the country have caught the attention of the Competition Commission of India (CCI) which is planning to launch a study to understand the pattern of their ownership across multiple firms and how it is impacting competition, Ashok Gupta, chairman, CCI said on Friday.
 

Addressing an annual Confederation of Indian Industry (CII) conference on competition law and practice, Gupta said, “Since many of these private equity investments are in multiple firms of the same industry, it is leading to product market overlaps. The issue of common ownership by minority shareholders across firms and its impact on competition needs to be understood.”
 

He said that due to the Coronavirus (Covid-19) pandemic, private equity investments have surpassed strategic investments this year. It has also overtaken the foreign direct and other foreign investment in the country.
 

CCI wants to gauge the ‘common underlying incentive and motivations’ of a private equity player behind such investments. It would look at the rights these investors have to protect their legitimate financial interest and whether such rights translate into their ability to influence the decision of a firm, consequently impacting competition. The commission would also study whether the investor or company holding the minority shareholding will classify as a passive investor.
 

“The study will help us in identifying the kind of shareholding rights available to common shareholders, the type of influence these rights provide and the available safeguards in companies' policies for mitigating competition concerns if any,” Gupta added.

CCI is also studying the pharma sector, focusing on four key aspects of the distribution chains in the market, including discounts and margin policies at wholesale and retail levels, the role of trade associations, regulatory rationalisation of trade margins and the impact of e-commerce on price and competition.
 

“Quality access and affordability of medicines are key determinants of the overall quality of public health...There is an inherent asymmetry between consumers and suppliers of health services,” Gupta said.
 

The CCI chief also highlighted the “inherent issues in public procurement and tender design vis-a-vis competition proliferation". He said that CCI has learnt from its experience that it is not enough to correct markets on the supply side, but an effective approach is required to work on the procurers side as well in order to broaden the reach and disseminate the idea of competition law to states.
 

The commission, in light of the Coronavirus (Covid-19) pandemic has taken steps like cease and desist orders instead of monetary penalties. Gupta said that CCI has taken note of the cooperation extended by parties during investigations. “Going forward the commission may assimilate such factors in the decision making process which will encourage the parties to cease anti-competitive behaviour and bring about the much needed market correction faster,” he said.