File photo. Photograph:( Reuters )
The threat of hostile takeovers from China is real and India is now plugging the loopholes in its laws to protect Indian businesses
The Bank of China(BOC) is one of the big four banks in the country. It is state-owned and flush with funds.
The Bank of China owns a Singapore based company - BOC Aviation, it lends aircraft to airlines the world over. The same company now owns a chunk of Norwegian Air but this story is much bigger and spreads way beyond Norway.
The global airline industry is in turmoil. The coronavirus pandemic has led to a hard landing for some of the biggest airlines and several face the risk of going bankrupt since their planes remain grounded. The income of major airlines the world over has stopped but their expenses continue.
As of December 31st last year, the company had a net book value of 16.9 billion dollars. The book value represents the worth of a company if all its assets are sold, and liabilities, paid back. The company has a fleet of 567 planes plus, a $2 billion funding line from the Bank of China.
Now, the company is using the pile of cash to get more planes in its fleet, and winning more clients in the process. BOC has picked up more than 12 percent of Norwegian Air. The Norwegian carrier had leased planes from the Chinese company.
Those lease obligations were converted into equity shares. The Bank of China controls it through a complex web of companies.
Ultimately, its the Chinese government that stands to gain. It is making most of the chaos, picking up more deals and acquisitions in some of the most disturbed sectors. So, India is stepping up the scrutiny on Chinese cash. After the new FDI rules, India will now check foreign portfolio investors(FPIs).
It is basically overseas investors. People or institutions who invest in securities and financial assets. India wants to keep a check on FPIs from China and Hong Kong. Reports say the government could set up a body to scrutinise new FPI registrations.
The development comes after India introduced a new layer of rules for Chinese investments. They will have to be first approved by the government. The threat of hostile takeovers from China is real and India is now plugging the loopholes in its laws to protect Indian businesses.
Germany is another country that is making new laws against hostile takeovers. Earlier this week, the German government gave itself new powers which would allow them to veto hostile foreign takeover bids in healthcare. The measure was adopted during a cabinet meeting.
Germany says these measures will help in ensuring continuous supply of viral medical products during the pandemic. Under the new rules, the German government can block investors from outside the European Union. Companies that are trying to buy German firms that make vaccines, protective equipment, ventilators, medicines or other supplies.
Germany has been proactive in tackling the threat of foreign takeovers other countries may want to take note and shore up their defences.