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| Foreign firms will have to bring forex for equity infusion |
| BS Reporter / New Delhi Feb 27, 2009, 00:47 IST |
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Foreign owned or controlled “investing companies” have to bring in foreign exchange for any fresh equity investment made here, not use profits made in India or borrow from the market, declared the Department of Industrial Policy and Promotion (DIPP) today.
This was part of a set of clarifications issued by DIPP on the norms to be used to treat downstream investments by Indian companies which have foreign equity, termed Press Note 4.
Investing company means an Indian one holding only investments in other Indian companies. Foreign owned or controlled means either having foreign ownership in excess of 50 per cent or non-residents having powers to appoint a majority of board members.
However, firms where investing companies have picked up equity are permitted to raise debt in the domestic market.
Another point relates to companies that have neither an operation nor any investment in other firms. Foreign investment in such “shell” companies has to get government approval, irrespective of the amount.
Press Note 4 also defines “operating companies”, classified as firms having operations in various sectors of the Indian economy. “Press Note 4 means that the norms followed in direct foreign investments will also have to be followed by indirect foreign investments,” said Akash Gupt, executive director, PricewaterhouseCoopers
The Note envisages four situations in this regard. These are operating company, operating cum investing company, investing company and companies which do not come under these categories.
Downstream investment by a foreign owned and controlled Indian company in an “operating company” will have to follow the sectoral guidelines, as well as caps associated with various sectors, the Press Note says. Similar conditions will apply to an “operating cum investing company”. In addition, downstream investments by companies in this category will also have to conform to sectoral norms for FDI.
Apart from operating companies, the other three categories will have to inform the government of its downstream investments within 30 days, even if equity shares have not been allotted.
Pricing, transfer and valuation of shares will have to be in accordance with Sebi and RBI guidelines.
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