The Mergers & Acquisitions Review: Bangladesh

Overview of M&A activity

Bangladesh has emerged as one of Asia's most remarkable economies and is poised to become the new Asian Tiger, having undergone phenomenal economic growth. Classified as a Next Eleven emerging market and one of the Frontier Five emerging economies in the world by Goldman Sachs2 and JP Morgan3 respectively, Bangladesh is slated to achieve middle income country status by 2021 and is projected to become the 24th largest economy by 2033.4 Unsurprisingly, Bangladesh has been attracting an abundance of foreign direct investment (FDI) and an increase in inbound merger and acquisition (M&A) transactions and activities.

The combination of a highly competitive workforce, export-oriented industrialisation and an investment-friendly environment have paved the way for foreign investment in Bangladesh. Between 2018 and 2019, Bangladesh experienced some of the largest FDIs in the country's history. The US$1.47 billion (equivalent to approximately 124 billion Bangladeshi taka) acquisition of Dhaka Tobacco by Japan Tobacco Inc was at the forefront of notable M&A activities.

Bangladesh has witnessed some of the largest intra-group, private and public M&A deals in the country's history in 2020 despite the worldwide covid-19 pandemic. This includes Unilever's acquisition of GSK Bangladesh for Dhaka Stock Exchange, with a record trade value of 20.2075 billion Bangladeshi taka,5 and Akij Group's acquisition of Janata Jute Mills for approximately 7 billion Bangladeshi taka.

While Bangladesh's astounding GDP average growth of above 8 per cent during 2018 and 2019 is expected to decline to 5.2 per cent in 20206 owing to the covid-19 pandemic, Bangladesh has the potential to attract increased FDI in the region given that Japan, Korea, the US, the UK and EU countries are considering relocating their factories from China. Chinese investments also continue to arrive in Bangladesh under the Belt and Road Initiative7. Accordingly, the influx of FDI into Bangladesh and M&A activities therewith will not only continue but escalate, as actions of ameliorating the impact of the covid-19 pandemic have already gained notable momentum.

Introduction

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General introduction to the legal framework for M&A

i The broad legal framework

Mergers and acquisitions in Bangladesh are governed by a combination of commercial laws and industry-specific laws. The key set of statutes that govern M&A transactions in Bangladesh include the Contract Act 1872, the Companies Act 1994 and the Competition Act 2012. Additionally, public limited companies including listed companies are required to ensure compliance with the Bangladesh Securities and Exchange Commission Acts 1993, Securities and Exchange Ordinance 1969 and the Bangladesh Securities and Exchange Commission (Substantial Acquisition of Shares and Takeovers) Rules 2018, alongside other security laws and by-laws promulgated by the regulators from time to time. Deals involving foreign investments and foreign currencies should also comply with the Foreign Exchange Regulations Act 1947, the Guidelines for Foreign Exchange Transactions and other regulations, circulars and guidelines of Bangladesh Bank, which is the central regulatory bank of Bangladesh.

Additionally, industry-specific laws have to be complied with. Examples of such laws include the Bank Companies Act 1991, the Financial Institution Act 1993, the Bangladesh Telecommunication Act 2001, the Telegraph Act 1885, the Petroleum Act 2016 and the National Digital Commerce Policy 2018, and relevant rules and by-laws promulgated thereunder.

Acquisitions that involve rebranding, IP rights on innovations, transfer of trademarks, designs patents, etc., will further require compliance of the Trademark Act 2009, the Trademark Rules 2015, the Patent and Design Act 1911 and the Rules of 1933.

Accordingly, a range of laws and regulations govern M&A transactions in the absence of a specific exhaustive M&A statute. The following section broadly outlines some of the key laws.

The law of contract

Transaction documents in an M&A deal, including shareholders' agreements, share purchase agreements, joint venture agreements, etc., as the case may be, are in general governed by the law of contract. The laws in relation to contracts in Bangladesh are governed and regulated by the Contract Act 1872. It establishes certain key elements behind the formation of a contract, including requirements with respect to the parties to the contract, capacity of the parties, offer and acceptance, lawful consideration, free consent, intentions to create a legal relationship, lawful purposes and object, certainty, specific subject matter, possibilities of performance, formalities and that the contract has not been declared void by or under any existing laws of Bangladesh.

Company laws

All companies in Bangladesh, including wholly owned subsidiaries of foreign companies and joint venture companies, are governed by the Companies Act 1994, which is the key piece of legislation in Bangladesh. The Companies Act 1994, together with the Companies Rules 2009, encompasses detailed laws governing most if not all aspects of company law, including rules and procedures for the distribution of share capital of companies and provisions for the reduction of share capital, management and administration of companies, procedures and rules for holding requisite meetings, appointment of company directors, etc.

Mergers and acquisitions generally have to comply with the corporate compliance requirements of the target company and that of its stakeholders, including those required by the memorandum and articles of association of the companies and the Companies Act and Rules. In particular, mergers require the steps established in the Companies Act 1994 to be followed, and the Company Bench of the High Court Division of the Supreme Court of Bangladesh holds the jurisdiction to pass necessary orders in connection thereto. Merger proposals are first placed before the board of directors of the respective companies for approval. After due approval from the board, an application under Sections 228 and 229 of the Companies Act 1994 has to be filed before the company bench.

The jurisdiction under Sections 228 and 229 is supervisory in nature. The court shows deference to the business decisions of the proposed M&A deal subject to compliance with legal requirements.8 The order of the court sanctioning the merger thereafter needs to be submitted to the Registrar for Joint Stock Companies and Firms for the necessary action at the implementation phase.

In sanctioning the merger of the Bangladeshi operations of Axiata and Bharti Airtel in 2016, the court was mindful of its responsibility to protect the public interest as the subscriber base of the two telecoms firms was around 32 million, and it thus considered socio-economic factors such as consumer interest, employee interest and government revenue.

Security laws

If one or more parties involved in an M&A transaction, including asset acquisitions, share acquisitions, amalgamation, etc., is listed on a stock exchange or is otherwise a public limited company, the transaction will also come under the purview of the applicable security laws of Bangladesh. This includes the Bangladesh Security and Exchange Ordinance 1969, and the various by-laws enacted from time to time thereunder by the Bangladesh Security Exchange Commission (BSEC).

BSEC plays a key regulatory role in the regulation and approval of M&A transactions involving public limited companies, including listed ones, and some specific private limited companies. However, BSEC has granted exemption to companies under Public-Private Partnership (PPP), public limited companies having a total capital not exceeding 10 million Bangladeshi taka and private limited companies having a total capital not exceeding 100 million Bangladeshi taka at any given time after making an issue of capital.9 The key instrument governing M&A transactions in the public sector is the BSEC (Substantial Acquisition of Shares and Takeover) Rules 2018,10 which affords unprecedented ease and flexibility to such transactions and provides a simplified procedure of substantial acquisitions.

ii Foreign exchange and the central bank regulatory regime

The Foreign Exchange Regulation Act 1947 requires foreign investors to obtain prior permission before taking over a Bangladeshi company owned by Bangladeshi residents.11 The Bangladesh Bank, the country's central bank, and its Banking Regulations and Policy Department play a pivotal role in regulating financial transactions associated with M&As, including the granting of general or specific exemptions.

While the rules pertaining to foreign exchange, including those on the repatriation of profits and share sale proceeds, have been relaxed by the central bank in recent years, a few decisions of the Bangladesh Bank in relation to approving foreign transactions regarding M&A transactions have exemplified undesirable precedents. For instance, in the global merger between Holcim and Lafarge, two of the leading cement giants globally, the Bangladesh Bank designated the agreed transaction price of US$117 million between the two parties and their respective subsidiaries in Bangladesh as 'too high' and only approved the repatriation of US$62.5 million. Despite the Bangladesh Bank retaining the discretion in purchase price determination, some uncertainties therefore exist as to the valuation methodology governing the exercise of discretion, rendering the remittance of sale proceeds difficult at times.

Strategies to increase transparency and predictability

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Developments in corporate and takeover law and their impact

i BSEC (Substantial Acquisition of Shares and Takeover) Rules 2018

The new 2018 Rules on the substantial acquisition of shares and takeover have replaced the 2002 rules, and has been a welcome change in the M&A laws. The Rules allow for substantial acquisitions of shares in a public listed company through cash purchase from security exchange and through negotiated deals, within and outside the trading system of the exchange. The Rules also provide for an application for exemption from the restrictions imposed therein.

ii Companies (Amendment) Act 2020

An amendment to the Companies Act 1994 was passed by the National Parliament of Bangladesh on 25 February 2020. The key legislative object achieved with this amendment is scrapping the mandatory requirement for a company to have a seal to be registered.

iii Companies (Second Amendment) Bill 2020 (National Parliament Bill No. 23 of 2020) – proposed introduction of One-Person Company

At present, a company is required to have at least two shareholders and two directors under the laws of Bangladesh. The Second Amendment Bill proposes to introduce the concept of a One-Person Company (OPC) in the Companies Act 1994. The Bill, if passed, will likely result in enhanced foreign direct investment in Bangladesh and pave the way for a higher number of M&A transactions. However, one limitation in the draft amendment is the proposed requirement for the sole shareholder of the OPC to be a natural person. The purpose for such a requirement may, however, be to safeguard against the incorporation of shell companies and prevent money laundering. This might, however, act as a deterrent to foreign corporations to incorporate an OPC that often prefer to hold the entire shareholding.

iv Bangladesh Bank Circular FE Circular No. 01 (5 February 2020)

This circular is aimed at facilitating the transfer of residual money payable to foreign shareholders in a winding-up of the concerned company. In the case of a winding-up of a company by the court or subject to the supervision of the court, the authorised dealers shall submit an application to the Bangladesh Bank along with an order of the court evidencing endorsement of the amount determined to be distributed to the shareholders for remittance.

v Bangladesh Bank Circular FE Circular No. 02 (5 February 2020)

This circular introduced detailed guidelines regarding share money deposit, which is likely to be beneficial for foreign investors acquiring shares in a Bangladeshi company. The circular introduced several guidelines to protect the legal interests of foreign investors. They include the concerned company completing the formalities of the issuance of shares within 360 days of receiving share money deposit from the foreign investor, and the share money deposit not being used for any purpose other than the main business of the company.

vi National Digital Commerce Policy 2018

In 2018, the government introduced the National Digital Commerce Policy 2018,12 which restricted acquisitions of digital commerce businesses by a foreign company without forming a joint venture with a local company.13 14 This policy deterred potential entrants such as Amazon and Alibaba from the digital marketspace of the country. In the wake of growing e-commerce platforms amid the coronavirus pandemic, the government issued the National Digital Commerce (Amended) Policy 2020, scrapping the requirement of forming a joint venture with a local company and allowing wholly foreign owned e-commerce entities, provided they complied with the laws and regulations of the country.15

vii Key covid-19 stimuli

To facilitate export trade amid the covid-19 pandemic, the restrictions on refinancing from the Export Development Fund have been relaxed.16 To enhance foreign investment to combat the financial crisis prompted by the pandemic, balances held by non-residents in non-resident investors taka accounts have been allowed to be used for the purchase of foreign end mutual funds.17 Furthermore, non-resident Bangladeshis have been allowed to deposit money earned abroad in Bangladeshi banks' taka accounts.18 Non-banking financial institutions (NBFIs) have been allowed to increase the tenure of term loan and leases.19

Us antitrust enforcement: the year in review

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Foreign involvement in M&A transactions

Outbound acquisitions by Bangladeshi nationals or investors are rare in Bangladesh, largely because of the conservative stance of regulators coupled with the lack of a legal framework for such outward investment. Most M&A transactions involve foreign corporations acquiring local or foreign companies by means of inbound remittance in the form of FDI.

As per the report of the Foreign Investment & External Debt Management Cell, Statistics Department, Bangladesh Bank, the UK leads the table of net inflow of FDI with US$117.8 million of investment in the first quarter of 2020. The major investment sectors include power, food and banking. Norway was second with US$68.93 million of inflow of FDI, primarily in the telecommunications sector. The United Arab Emirates followed with US$51.23 million, primarily in the power and construction sectors.

Foreign investment flow during the financial years 2018–19 and 2019–20 stood at US$2.88 billion and US$3.88 billion respectively.20 The total FDI stock was estimated at US$16.4 billion in 2019 by UNCTAD.21 The main investors in the country are China, South Korea, India, Egypt, the UK and the United Arab Emirates.

Significant transactions, key trends and hot industries

Some of the notable M&A transactions in Bangladesh include the following deals.

  1. Evercare and CDC Group, the UK's development finance institution, have recently acquired the controlling interest in STS Holdings Ltd, the infrastructure owner and operator company of Apollo Hospitals in Dhaka, marking a FDI of over 10 billion Bangladeshi taka. The transaction was consummated during the first half of 2020 despite the covid-19 pandemic.
  2. Bangladesh's Akij Group, which has the world's largest jute yarn manufacturing unit, acquired Janata Jute Mills for around 7 billion Bangladeshi taka during the covid-19 pandemic.22
  3. Despite the ongoing covid-19 crisis, Anchorless Bangladesh, a US-based venture capital firm, has invested in digital logistics platform start-up Loop Freight, with an initial seed fund of US$600,000 in May 2020.23
  4. In June 2020, Unilever acquired an 81.98 per cent stake in GlaxoSmithKline (GSK) Bangladesh Ltd from Setfirst, a GSK Group member, marking a record trade value of an individual company in the history of the Dhaka Stock Exchange, valued at a total 20.2075 billion Bangladeshi taka.24
  5. In December 2019, Heidelberg Cement completed acquiring 100 per cent shares of Emirates Cement Bangladesh Limited and Emirates Power Company Limited from UltraTech Cement Middle East Investment Limited for around 1.83 billion Bangladeshi taka. Reportedly, they have also expressed interest in acquiring Meghna Energy, a captive power plant in Narayanganj district.25
  6. Bangladesh saw some of its biggest M&A transactions during 2018 and 2019. It established a record when Akij Group sold its entire tobacco business, Dhaka Tobacco, to Japan Tobacco Inc for a mammoth $1.47 billion in November 2018.26
  7. In April 2018, an interesting M&A transaction took place between Alipay, an affiliate of Alibaba Group, and bKash, when 20 per cent of the latter was bought by Alibaba Group. Neither bKash nor Alipay gave any financial figure on the deal.
  8. A Chinese consortium that included the Shenzhen and Shanghai stock exchanges bought 25 per cent stakes in the Dhaka Stock Exchange for $125 million in 2018.27
  9. Beximco Pharmaceuticals Limited completed the acquisition of about 85 per cent of Nuvista Pharma Limited in the same year.28
  10. There have been a few major acquisitions in the telecoms sector in the recent past that are worthy of mention: the purchase by Malaysia's Axiata of telecom operator Aktel, which was later rebranded as Robi; the acquisition of Warid Telecom by India's Airtel; and the purchase of Sheba Telecom by Egypt's Orascom Telecom. The acquisition of significant shares of City Cell by SingTel and Aktel's shares by NTT DoCoMo were all among notable acquisitions in the sector.
  11. Bangladesh's ride-sharing start-up app Pathao closed equity financing from a number of investors, including Indonesia's Go-Jek, reportedly at a valuation of over US$100 million.29
  12. In 2016, Siam City Cement, one of Thailand's largest cement producers, acquired Cemex Cement Bangladesh Ltd.30
  13. Bangladesh's leading conglomerate Transcom acquired local Philips and Pepsi business from its previous foreign owners.
  14. M&As are comparatively rare in the financial sector. Reportedly, three local groups of companies have been discussing with Bangladesh Bank to take over the operation of People's Leasing and Financial Services (PLFS).31 Previously, Oriental Bank was acquired by ICB Financial Group, another Malaysia-based group. In 2010, Summit acquired ICB Bank's stake.32 ICB Banking Group, which acquired Oriental Bank and renamed it ICB Islamic Bank Bangladesh, has decided to sell its entire shareholding for US$55 million.
  15. Intra group M&As are increasingly being used for group restructuring and commercial strategy to maximise profit and reduce operational costs. For example, the board of directors of the publicly listed United Power Generation and Distribution Company Limited has decided to acquire two power plants of the United Group: the United Anwara Power Ltd and United Jamalpur Power Ltd.

Trends suggest that construction and engineering, healthcare, power development, digital commerce, telecommunication, communication, ready-made garments and banking and finance are currently generating most interest for possible M&A transactions. Furthermore, foreign investors have been demonstrating increasing interest in the power, energy and petroleum sectors.

Financing of m&a: main sources and developments

i Debt-based financing

The acquirer company may obtain debt-based financing from local banks and NBFIs to finance acquisition. Foreign investors may use such financing through their subsidiary companies in Bangladesh. This is, however, subject to furnishing satisfactory collateral. Upon acquisition of the target company, a wide range of debt-based financing can pave the way for pursuing the ambitions of the acquirer. This includes loans for working capital and various funded credit facilities.33

Syndication loans and other structured finance are also available in Bangladesh. Debt restructuring is often relevant in M&A transactions. Furthermore, non-funded credit facilities such as bank guarantees may also be relevant and used depending on the transaction structuring.

ii Private borrowings from foreign sources

Industrial enterprises in the private sector may obtain borrowings or credit from recognised lenders including international banks, international capital markets and multilateral financial institutions, as well as export credit agencies and suppliers of equipment. Borrowing from foreign equity holders for bridge financing may also be used.

Foreign borrowings will, however, require prior approval from the Bangladesh Investment Development Authority, and the process also involves approval from the central bank's scrutiny committee. The proposed rate of interest must be competitive, with prevailing lending rates in the international markets in the concerned currencies for the relevant tenure. Usually, the interest rate should be based on the prevailing government treasury bond rate in that currency for that tenure, plus a reasonably modest country risk premium.34

iii Equity financing

Investors may also consider equity-based financing from Bangladesh's capital market, which has two stock exchanges. Investors have to comply with the securities laws of Bangladesh, and are subject to prior approval from the Bangladesh Securities and Exchange Commission.35

iv Bonds

The corporate bond market in Bangladesh is still in its infancy, with very few publicly placed corporate bonds. The lack of demand for such debt instruments has, therefore, discouraged companies from floating the option.36

Employment law

The labour and employment law of Bangladesh is codified substantially by the Labour Act 2006, as amended, and the Labour Rules 2015. The Labour Act 2006 addresses the conditions of employment and service, maternity benefits, health, hygiene and safety of workers, working hours, leave, wages and payment thereof, compensation for injury caused by accident, trade unions and industrial relations, settlement of disputes, participation of workers in the profit of the companies, provident funds, apprenticeships, dismissal, termination and separation, among other relevant provisions.

There are no provisions in the Labour Act 2006 or concerned rules that apply specifically to M&A transactions. However, as far as intra-group M&A transactions are concerned, there has not been much concern that would necessitate legislative intervention. However, in private and public transactions, the impact of M&A transactions on employees and the safeguarding of their rights and interests need to be addressed. Presently, as has been seen in the Robi merger case, the High Court plays a pivotal role in ensuring the rights and interests of employees in M&A transactions that may potentially have an adverse impact on employee rights. Parties to an M&A deal are required to undertake comprehensive due diligence on employment law compliance of the target company.

Tax law

The principal legislation governing income tax in Bangladesh is the Income Tax Ordinance, 198437 (ITO), which undergoes annual amendments and additions through the Finance Acts promulgated every year. The ITO is complemented by the Income Tax Rules 198438 enacted by the National Board of Revenue (NBR) which is the regulatory authority for tax administration in Bangladesh. Additionally, the NBR from time to time promulgates statutory regulatory orders and general orders as and when required.

i Taxations in connection with M&A transactions

Acquisition involves the purchase of shares. Stamp duty at a rate of 1.5 per cent39 of the agreed purchase consideration is payable on the share transfer. However, there is no stamp duty on the transfer of dematerialised shares. The seller is required to pay 15 per cent capital gains tax.40 The capital gain is calculated by subtracting the acquisition cost and development cost from the sale consideration.41

A lower tax rate of 10 per cent applies on capital gains made by firms and companies from transferring public company shares listed on stock exchanges, and 5 per cent for sponsor shareholders and directors of banks, financial institutions, insurance companies, merchant banks, leasing companies, portfolio management companies, stock dealers or stockbrokers. For other individuals, these gains are exempt from tax. Capital gains made from transferring stocks or shares in a publicly listed company made by a non-resident assessee are exempt from tax if similar exemptions may be used by them in their country of residence.

For the sale of other assets in the course of a M&A transaction, a stamp duty of 3 per cent of the purchase price for the transfer of any immovable or movable property applies. In addition, a local government tax of 1 per cent and a registration fee of 2 per cent of the property value is payable for the transfer of immovable properties. There is no exemption from stamp duty on an asset sale or transfer with the exception of a demerger.42

An asset sale structured as a merger in accordance with the income tax rules can be tax neutral for the parties involved if it satisfies certain conditions.43 A demerger is tax neutral by its structure. Following a demerger, the undertaking's transfer is dealt with in the same way as a share sale.

All other asset sales, including slump sales and item-wise sales, attract a 15 per cent capital gains tax. In addition, there is a potential 15 per cent VAT obligation triggered by an asset sale. Individuals holding an asset for less than five years are required to pay capital gains tax at the highest applicable income tax rate. The only exemptions are mergers and demergers.

ii Corporate income tax

Under the Bangladesh tax law, corporate income tax (CIT) rates are 35 per cent for non-publicly traded companies and 25 per cent for publicly traded companies. Some sector-specific businesses attract higher CIT rates, such as banks and NBFIs (37.5 per cent to 42.5 per cent) and cigarette manufacturers (45 per cent). If any non-publicly traded company transfers a minimum of 20 per cent of shares of its paid-up capital through an initial public offering it would receive a 10 per cent rebate on total tax in the year of transfer.

iii Income tax incentives

To facilitate and promote export-oriented trade, the decentralisation of industries and FDI in Bangladesh, a range of income tax incentives are available for investors. These include a tax holiday for industrial undertakings established in Export Processing Zones, tax benefits for investment in Special Economic Zones, tax rebates for manufacturing companies set up in places other than city corporation areas, and tax holidays for certain industrial undertakings. Industries and projects funded by foreign investment may also use deemed export tax benefits and refunds. Export-oriented industries can use bonded warehousing facilities for importing raw materials and packaging materials.

iv Covid-19 tax incentives

Following the covid-19 pandemic, with a view to rejuvenating the economy and promoting development in the power sector, a number of tax incentives have been declared by the government, which include:44

  1. income of private power generation companies (PPGCs) are exempted from tax liabilities up to 31 December 2034;
  2. income of foreign nationals exempt for three years;
  3. interest payments on foreign loans can be paid off without Withholding Tax (WHT); and
  4. royalty, technical know-how and technical assistance fee payments can be made without WHT.

Capital gains arising from divestment are exempted.

If commercial production of a PPGC starts during the period 1 January 2023 to 31 December 2024, there is a 100 per cent exemption from tax if available for the first five years, and then a 50 per cent exemption for the next three years, followed by a 25 per cent exemption for the next two years for a total of 10 years of some types of exemption.

Additionally, in response to the covid-19 pandemic, on 22 March 2020, the NBR exempted 12 types of safety products and test kits from import duties and taxes until 30 June 2020. Moreover, steps are being taken to extend the time limit for the filing of necessary VAT returns and tax returns. Taxpayers complying with the extended deadlines shall not be subject to penalties or interest.

The NBR plans to modernise the Bangladesh Integrated Tax or BiTAX system of the tax department involving digital tax payments, as well as online tax return submission facilities.45

Competition law

Bangladesh, being a developing country with promising economic features, has always felt the necessity of a legal framework for maintaining a free, open and sustainable market to ensure an affable atmosphere for competition in trade. Accordingly, the Competition Act 2012 was enacted to prevent, control and eradicate activities adverse to competition.

Bangladesh's Competition Act strictly prohibits anticompetition agreements and abuse of dominant position owing to the adverse impact it may have on the fair competition of trade. It further states that no person shall directly or indirectly enter into any agreement or collusion46 that causes or may cause adverse effects on competition or creates a monopoly or oligopoly in the market in respect of the production, supply, distribution, storage or acquisition of any goods or services.

Parties to an M&A deal must give due regard to the competition laws of Bangladesh and undertake due diligence in connection thereto. The Competition Act refers to various anticompetition agreements, including tie-in arrangements, exclusive supply agreements, exclusive distribution agreements, refusal to deal and resale price maintenance.47

Most importantly for mergers, the Competition Act specifically prohibits combination that causes or is likely to cause an adverse effect on competition in the market of goods or services.48 Combination, under the said Act, refers to the acquisition, taking control, amalgamation or merger in trade.49 Accordingly, combination transactions may require the prior approval of the relevant regulator after satisfying that such a combination is not likely to cause any adverse effect on competition.

The Competition Act established the Bangladesh Competition Commission to investigate complaints under the Act and to promulgate further rules in this regard. The Competition Commission is yet to become fully operational but is soon expected to eliminate anticompetitive practices as well promote competition for ensuring the freedom of trade.50

Outlook

As mentioned earlier, it can be concluded that Bangladesh has witnessed some of its largest M&A transactions in 2020, notwithstanding the covid-19 pandemic. The impact of the pandemic has complicated the processes involved in M&A transactions but it has certainly not prevented deals from concluding. Smaller enterprises don't appear in the media, but numerous acquisitions are taking place every day in Bangladesh.

To date, there has not been any codified set of laws or regulations that can regulate M&A transactions and it can fairly be said that the laws and regulations in relation to M&A are rather scattered. Guidance in relation to M&A is a much-needed initiative that should be undertaken by the government as soon as possible. Possible reforms may include the enactment of a single codified M&A law or code consolidating the different scattered provisions and guidelines with reference to the various industry-specific laws in it. This would have an important bearing on the perception of the adequacy of the legal framework.

Until then, comprehensive due diligence, legal and financial, is of utmost importance before embarking on a deal. In addition, a compliant, enforceable and tax-efficient deal structuring is of the essence.

Footnotes

1 Suhan Khan is managing partner and Syeda Faiza Hossain and Ahmed Farzad are associates at Accord Chambers (Bangladesh).

2 Goldman Sachs, Global Economics Paper No. 153 (1 December 2005).

3 JP Morgan, Frontier Five (2007).

4 KPMG, Investment Guide – Bangladesh, July 2020.

5 Ahsan Habib Tuhin, Unilever acquires 82 per cent stake of GSK Bangladesh, The Business Standard (Dhaka, 28 June 2020).

6 Asian Development Bank, Asian Development Outlook, 2020 Update (September 2020).

7 Suhan Khan, Mamun Chowdhury, Structuring and Financing Foreign Direct Investment (FDI) in Bangladesh, ABLJ May/June 2020 (https://www.vantageasia.com/bangladesh-fdi-structuring-financing/ accessed on 30 September 2020).

8 Tabarak Hossain Bhuiyan, Legal environment for mergers and acquisitions in Bangladesh, The Financial Express (Dhaka, 1 October 2020).

9 Vide Order dated 20 September 2020 bearing reference number BSEC/CMRRCD/2009-193/Admin-73 (https://www.sec.gov.bd/slaws/Order_related_to_granting_exemption_on_companies_under_PPP.PDF).

10 Rules 3, 4, 5 and 6 of BSEC (Substantial Acquisition of Shares and Takeover) Rules 2018.

11 Foreign Exchange Regulation Act 1947, Section 18.

12 National Digital Commerce Policy 2018 (http://e-cab.net/wp-content/uploads/2019/02/Digital-Commerce-policy-2018.pdf, accessed 4 October 2020).

13 Clause 3.6.7 of the National Digital Commerce Policy 2018.

14 Jasim Uddin, Govt issues digital commerce policy making JV must for foreign investors, New Age (Dhaka, 5 February 2019).

15 WTO Cell, Ministry of Commerce Notification No. 26.00.0000.133.93.024.19-04 dated 3 June 2020.

16 Bangladesh Bank FE Circular No. 36 dated 27 August 2020.

17 Bangladesh Bank FE Circular No. 33 dated 20 August 2020.

18 Bangladesh Bank FE Circular No. 32 dated 9 August 2020.

19 DFIM Circular No. 04 dated 9 August 2020.

20 KPMG, Investment Guide – Bangladesh, July 2020.

21 Country Profile, Foreign Direct Investment (FDI) in Bangladesh, Nordea (updated September 2020).

22 Sajjadur Rahman, Janata Jute Mills changes hand in Tk 700 cr deal, The Business Standard (Dhaka, 28 June 2020).

23 Ahmed Hasam Rabbi, Anchorless Bangladesh: Investing in the country's future, The Business Standard (Dhaka, 30 August 2020).

24 Ahsan Habib Tuhin, Unilever acquires 82 per cent stake of GSK Bangladesh, The Business Standard (Dhaka, 28 June 2020).

25 Heidelberg Cement Bangladesh completes acquisition of Emirates Cement and Emirates Power, BizData Insights (9 December 2019).

26 Reuters, Japan Tobacco buying Bangladesh Akij's tobacco business for $1.5 billion, Thomson Reuters (6 August 2018).

27 Reuters, Dhaka Stock Exchange sells 25 pct stake to Chinese consortium, Thomson Reuters (15 May 2018).

28 Completion of the acquisition of Nuvista Pharma Limited, Beximco Pharmaceuticals Ltd, press release (3 April 2018).

29 Financial Express, Pathao mobilises foreign funds, The Financial Express (Dhaka, 28 April 2018).

30 ICRT Newsroom, Siam City Cement acquires Cemex Bangladesh, CemNet.com (28 July 2016).

31 Shamsul Huda, Three local groups likely to take over bankrupt PLFS, The Daily Observer (Dhaka, 10 March 2020).

32 Sajjadur Rahman, Summit buys ICB bank stake, The Daily Star (6 June 2010).

33 Suhan Khan, Mamun Chowdhury, Structuring and Financing Foreign Direct Investment (FDI) in Bangladesh, ABLJ May/June 2020 (https://www.vantageasia.com/bangladesh-fdi-structuring-financing/ accessed on 30 September 2020).

34 ibid.

35 ibid.

36 ibid.

37 Ordinance No. XXXVI of 1984.

38 SRO No. 39-L/85.

39 Stamp Act 1899, Article 62 of Schedule 1.

40 Income Tax Ordinance 1984, Section 56 (1) Sl No. 17.

41 Income Tax Ordinance 1984, Section 32 (1).

42 Doulah, ABM Nasirud, Khatoon, A, Private mergers and acquisitions in Bangladesh: overview, Thomson Reuters Practical Law (accessed 1 February 2020).

43 ibid. The conditions include: (1) all the property of the amalgamating company or companies immediately before the merger becomes the property of the amalgamated company; (2) all the liabilities of the amalgamating company or companies immediately before the merger become the liabilities of the amalgamated company; and (3) the shareholders with no less than nine-tenths in value of the shares in the amalgamating company or companies (other than shares already held in it immediately before the merger by the amalgamated company, its subsidiary or a nominee) become shareholders of the amalgamated company.

44 KPMG, Bangladesh: Tax developments in response to covid-19 (https://home.kpmg/xx/en/home/insights/2020/04/bangladesh-tax-developments-in-response-to-covid-19.html accessed on 30 September 2020).

45 Financial Express, Bangladesh gearing up for new era of taxation, The Financial Express (Dhaka, 4 July 2020).

46 As per Section 2(q) of the Competition Act 2012, 'collusion' means any written or unwritten agreement or understanding with mala fide intention to control the market by destroying the environment of congenial and usual competition.

47 Competition Act 2020, Section 15(3).

48 Competition Act 2020, Section 21.

49 Competition Act 2020, Section 2(h).

50 Competition Act 2020, Section 8.

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