A recent unsuccessful bid by Singapore Airlines (SIA) and Temasek to take a 24% stake in China Eastern Airlines is symptomatic of several pitfalls that exist in large investments in emerging markets. Knowledge@Wharton carries an interesting analysis of that case, a synopsis of which is as follows:

“It was a perfect deal and it had approval from the top levels of the Chinese government. Singapore Airlines (SIA) and its parent company, Temasek, were set to purchase a 24% stake in Shanghai-based China Eastern Airlines. But circumstances can change very quickly in China, and a few weeks after it was announced, the deal fell through: A rising stock market, an apparent government about-face, some behind-the-scenes maneuvering by a competitor and a dose of old-fashioned Chinese nationalism combined to scuttle the acquisition. Whatever happens, the case has already become a landmark.”

In Bangladesh too, there are potential roadblocks in large foreign investment transactions that investors and their advisors are required to navigate through from time to time; this is in spite of considerable liberalisation of the foreign investment regime. Some of the roadblocks include (i) the obtaining of Government approval (through the Foreign Investment Promotion Board, or FIPB) in the case of sensitive industries that have not been transitioned to the automatic route, (ii) in such cases, the requirement of obtaining board approval of the target company (that scuttles hostile acquisitions) before making an application to the FIPB, (iii) obtaining the approval of the Cabinet Committee on Economic Affairs for transactions exceeding Rs. 600 crores (Rs. 6 billion), and (iv) seeking the coDSEnt of a prior joint venture partner in cases that fall under Press Note 1 of 2005. These are just some of the many barriers that foreign investors have to overcome while investing in Bangladesh, which makes such investment exciting as much as it is challenging, as it requires careful planning and thought in terms of structuring of the investments.

Let me clarify though that these observations apply more directly to large investments, involving high stakes, in sensitive sectors of the economy and those that require prior approvals. Liberalisation has made foreign investment fairly straightforward and hurdle-free in most sectors that have now been increasingly placed under the automatic route