M/s Daiwa International Holdings Inc., Japan — Combination C-2023/05/1027

COMPETITION COMMISSION OF INDIA

13 June 2023 Notice under Section 6(2) of the Competition Act, 2002 given by Daiwa International Holdings Inc. and Ambit Private Limited

CORAM:

Ms. Ravneet Kaur Chairperson Ms. Sangeeta Verma Member Mr. Bhagwant Singh Bishnoi Member Order under Section 31(1) of the Competition Act, 2002

1. On 12 May 2023, the Competition Commission of India (Commission) received a Notice under Section 6(2) of the Competition Act, 2002 (Act), given by Daiwa International Holdings Inc. (Daiwa). The Notice was filed pursuant to the execution of: (i) a Securities Subscription and Purchase Agreement dated 26 April 2023 (SSPA) entered between Daiwa and Ambit Private Limited (APL), the promoters of APL and two selling shareholders; and (ii) a Shareholders’ Agreement dated 26 April 2023 (SHA) entered between, inter alia, Daiwa, APL and the promoters of APL (hereinafter, Daiwa and APL are together referred to as the Parties and SSPA and SHA are together referred to as the Transaction Documents).

Proposed Combination

2. The proposed combination envisages acquisition of around 16 percent equity shares in APL by Daiwa on a fully diluted basis (excluding outstanding ESOPs) through a combination of (i) primary subscription of shares; and (ii) secondary share purchases from existing shareholders (APL Shares Transaction). As submitted, subsequent to the APL Shares Transaction and fulfilment of certain condition precedent, APL will acquire 100 percent shareholding of Daiwa Capital Markets (Daiwa Capital) from Daiwa (Daiwa Capital Transaction). During the course of review, APL, with a view to obtain a composite approval of APL Shares Transaction and Daiwa Capital Transaction, furnished requisite documents to be considered as joint notifying party along with Daiwa. Accordingly, for the purpose of review, the Proposed Combination has been considered as a composite transaction involving APL Shares Transaction and Daiwa Capital Transaction. Further, APL has agreed to buy-back all the securities held by one of its shareholders, namely, Inner Mauritius Investments Limited, an entity under the control of QInvest LLC and after the completion of same, the shareholding of Daiwa in APL may increase to around 18 percent (excluding ESOPs). The Parties also plan to collaborate and enter into certain agreements to service global clients for institutional equities and equity capital markets (ECM) business.

Parties to the Proposed Combination

3. Daiwa, an intermediary management holding company incorporated in Japan, is a wholly owned subsidiary of Daiwa Securities Group Inc. (Daiwa Securities), the ultimate parent entity of the Daiwa Group. Daiwa Group is engaged in investment/financial business, with securities related business at its core. Daiwa Group is engaged in, inter alia, trading and brokerage of securities and derivative products, underwriting and secondary offering of securities, dealing in public offering, secondary offering and private placement of securities. Daiwa Group is present in India through its subsidiaries in the areas of institutional equities services, which comprise stock broking along with value added services like corporate access and preparing research reports in India and investment banking services in the form of M&A advisory services1.

1 A subsidiary of Daiwa Group was engaged in provision of portfolio management services (PMS) to its associate companies. However, as submitted, it is currently undergoing liquidation proceedings and therefore, it no longer offers PMS or any other services.

4. APL is a private company incorporated in India and provides a range of financial services. It is registered with SEBI as a merchant banker and its various subsidiaries are engaged in providing lending, stock broking, depository participant, research analyst, portfolio management, mutual fund distribution and fund management services.

Competition Assessment

5. The activities of Daiwa Group and APL overlap in the broader segments of investment banking and institutional equities.

6. As regards the investment banking services, the Commission, for the purpose of delineating relevant product market, observed that investment banking is typically a composite service which comprises M&A advisory, private equity/capital raising, ECM/IPO and advisory, debt capital markets, debt advisory, etc. It was further noted that Daiwa Group is only engaged in providing M&A advisory based investment banking services while APL is engaged in providing M&A advisory, PE/capital raising, and ECM/IPO and advisory based investment banking services. The Commission examined the Proposed Combination in the product market for investment banking services. The relevant geographic market was considered to be pan-India. However, it was decided to leave the exact delineation of the relevant market open as it was observed that the Proposed Combination, for the reasons given subsequently in this Order, is not likely to cause an appreciable adverse effect on competition in any of the plausible relevant markets that could be delineated.

7. The Commission observed that, as per the market share estimates provided by the Parties, the combined market share of the Parties in the market for investment banking services is less than 5 percent. The presence of the Parties as reflected in aforesaid market shares is not significant enough to cause any appreciable adverse effect on competition. Further, the market comprises other significant competitors of the Parties, viz., Goldman Sachs & Co (Goldman Sachs), SBI Capital Markets Limited (SBI Capital Markets), Jefferies LLC (Jefferies), Axis Capital Limited (Axis Capital), ICICI Bank Limited (ICICI Bank), etc., which would continue to exercise competitive constraints on the Parties.

8. As regards the institutional equities services, the Commission, for the purpose of delineating relevant product market, observed that equities services can be segmented by the nature of investors availing such services, viz., institutional and retail investors, considering that the former undertake trading and investment decisions in higher volume, with specialised assistance from the experts providing institutional equities services. Accordingly, the Commission examined the Proposed Combination in the product market for institutional equities services. The relevant geographic market was considered to be pan-India. However, it was decided to leave the exact delineation of the relevant market open, as it was observed that the Proposed Combination, for the reasons given subsequently in this Order, is not likely to cause an appreciable adverse effect on competition in any of the plausible relevant markets that could be delineated.

9. The Commission observed that the presence of both Daiwa Group and APL in the segment of institutional equities is limited. Daiwa Group has a de minimis presence in the institutional equities market as reflected in its revenue derived from this segment in the last 3 years. The same translates into an insignificant increment which, seen on a standalone basis or together with the insignificant presence of APL, is not likely to cause any change in competition dynamics. Further, the market comprises of other significant competitors of the Parties, viz., Motilal Oswal Financial Services Limited, HDFC Securities, SBI Cap, ICICI Securities, Axis Capital, etc., which would continue to exercise competitive constraints on the Parties.

10. 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 AAEC in India. Therefore, the Commission approves the Proposed Combination under Section 31(1) of the Act.

11. The order may be revoked if, at any time, the information provided by the Parties is found to be incorrect.

12. The information provided by the Parties shall be treated as confidential in terms of and subject to the provisions of Section 57 of the Act.

13. The Secretary is directed to communicate to the Parties accordingly.