INVESTMENT
IN JV/WOS ABROAD
AUTOMATIC ROUTE
Investment in JV/WOS abroad by Indian Party:-
1.
Investment upto 400% of NW as on date of latest audited balance
sheet is allowed to invest by Indian party.
2.
Indian
party means all type of investor like company, body created under the
Act of Parliament, Registered Partnership Firm and any other entity as may be
notified by RBI. This includes all categories except Individuals, unregistered partnership
Firm, Trust and Society.
3.
For
the purpose of limit of 400%, following will be reckoned:-
·
Equity.
·
Loan
·
100% of Guarantee except performance
guarantee.
·
50% of performance Guarantee.
4.
Loan/Guarantee can be given only when there
is equity participation.
5.
No guarantee shall be open ended.
6.
In case of invocation of performance
guarantee breaching the limit of 400%, Indian party will obtain prior approval of RBI before
remitting funds with respect to such invocation.
7.
Indian party should not be under the RBI
Exporters” Caution list/ Defaulter to Banking System/Under investigation by ED
or other regulatory agency.
8.
All Transaction to one JV/WOS shall be
routed through one branch of
AD designated by Indian party.
Valuation in case of acquisition of existing foreign Company:-
Limit
on Investment
|
Valuation
By
|
More
than USD 5 Million
|
Category
I Merchant Banker register with SEBI or investment Banker/Merchant Banker
registered outside India in host country
|
Upto
USD 5 Million
|
CA/CPA
|
In
case of investment by swap of shares
|
ALL CASES BY:------
Category
I Merchant Banker register with SEBI or investment Banker/Merchant Banker
registered outside India in host country.
Approval of FIPB will also be required.
|
Acquisition of shares of foreign company in lieu of ADR/GDR:-
Conditions:-
1.
ADR/GDR are listed on any STXs outside
India.
2.
ADR/GDR is backed by underlying fresh
equity shares of Indian party.
3.
Total holding of foreign entity in Indian
Party in expanded capital base does not breach sectoral cap, if any.
4.
Valuation of shares of foreign company
shall be:-----
Ø Listed:-
based
on the current market capitalisation of the foreign company arrived at on the
basis of monthly average price on any stock exchange abroad for the three
months preceding the month in which the acquisition is committed and over and
above, the premium, if any, as recommended by the Investment Banker in its due
diligence report in other cases.
Ø Unlisted:--
as
per the recommendations of the Investment Banker.
Reporting to RBI under Automatic Route:--
1.
In case of initial remittance of funds
towards formation of JV/WOS abroad as well as fully/partial acquisition of
foreign company, reporting will be made in form ODI to RBI within 30 days of remittance through
designated AD.
2.
Any further remittance is also required to
be intimated to RBI in form
ODI within 30 days through designated AD.
3.
Any change in shareholding pattern is also required
to be intimated to RBI within
30 days through designated AD.
Issue of Guarantee by Indian Party in favour of step down subsi
of JV/WOS:-
Automatic Route:-- On behalf of or in
favour of first level step down operating JV/WOS
1. Indian
party are allowed to issue the corporate guarantee on behalf of first level step down operating
JV/WOS subject to the condition that the financial commitment of Indian
party does not exceed the limit of 400%.
2. Reporting
in ODI is required to RBI.
Approval Route:-- On behalf of or in
favour of second or subsequent level
step down operating JV/WOS:-
1. Will
consider by RBI under approval
route provided Indian party directly or indirectly holds 51% or more
stake in the foreign company for which such guarantee is intended to be issued.
Investment through SPV:- Automatic Route
1.
Setting up of JV/WOS through the medium of
SPV are allowed under automatic route provided the Indian party is not under
defaulter list/caution list etc.
2.
Setting up SPV is permitted under automatic
route for investment in JV/WOS.
Investment in unincorporated entity in Oil Sector –
Automatic route
1.
Investment
by Navratna PSU/OVL/OIL:-- without any limit provided the
investment is approved by competent authority .
2.
Other
Indian Company:-
Upto 400% of NW provided:--
Ø the
investment is approved by competent authority .
Ø supported
by certified copy of BR approving such investment.
3. Investment
breaching the limit of 400% require approval of RBI.
Investment in consortium with other international operators to
construct and maintain submarine cable system on co ownership basis:- – Automatic route
1. Allowed under automatic route provided
:-
Ø Indian
company has obtained necessary licence from the Department of
Telecommunication, Ministry of Telecommunication & Information Technology,
Government of India to establish, install, operate and maintain International
Long Distance Services.
Ø supported
by certified copy of BR approving such investment.
Ø Reporting
is made in ODI.
Method of Funding for investment in JV/WOS:-
Funded
out of one or more of the following sources:--
1.
Drawl of forex from AD in India.
2.
Capitalization of exports.
3.
Swap of shares
4.
Proceed of ECB/FCCB.
5.
In exchange of ADR/GDR.
6.
Balance in EEFC Account
7.
Foreign currency raised through ADR/GDR.
In respect of EEFC
Account and forex raised through ADR/GDR, limit of 400% will not apply.
Capitalization of exports and other dues:--
1.
Indian party is allowed to capitalize the
payment due from the foreign entity under automatic route with respect to the following:--
·
Exports.
·
Fees.
·
Royalties.
·
Any other dues for supply of technical knowhow,
consultancy, managerial and other services.
2.
Capitalization will be within the limit of
400%.
3.
Capitalization of export proceeds remain
unrealized beyond the prescribed period for realization (normally 6 months)
will require prior approval of RBI.
4.
Indian software exporters are permitted to
receive 25 per cent of the value of their exports to an overseas software start-up
company in the form of shares without entering into Joint Venture Agreements,
with prior approval of the Reserve Bank.
Investment in Financial Service Sector:--
Indian Party
seeking investment in financial sector outside India shall fulfill following
additional conditions under automatic route;--
1.
Indian party is registered with regulatory
authorities in India for providing financial service activities.
2.
Has earned net profit in preceding 3 FY
from such financial service activities.
3.
Fulfill the prudential norms relating to
capital adequacy.
4. Obtained
the approvals from regulatory
authorities both India and abroad for venturing into such financial
activities.
Any
additional investment by an existing JV/WOS or its step down subsidiary in the
financial services sector is also required to comply with the above conditions.
APPROVAL ROUTE
1.
In all other cases (i.e except as stated
above), direct investment abroad requires the prior approval of RBI.
2.
Application for the same along with
necessary particulars shall be submitted
in form ODI through AD.
3.
Reserve Bank would, inter alia, take into account the following
factors while considering such applications:
·
Prima facie viability of the JV / WOS outside India;
·
Contribution to external trade and other benefits which will
accrue to India through such investment;
·
Financial position and business track record of the Indian party
and the foreign entity; and
·
Expertise and experience of the Indian party in the same or
related line of activity as of the JV / WOS outside India.
CASES FALLING UNDER THE APPROVAL ROUTE
I.
Investment in
excess of 400% of NW.
II. Guarantee on behalf of second level step down operating JV/WOS.
III. Acquisition
of shares under SWAP Arrangement.
IV. Investment
in Energy and natural resources sector in excess of 400% of NW.
V.
Overseas
Investment by proprietary
concern and unregistered partnership firm:--
1. Proprietary
concern and unregistered partnership firm are allowed to set up JV/WOS abroad with prior approval of RBI.
2.
Eligibility
criteria is as follows:-
·
The Partnership / Proprietorship firm is a
DGFT recognized Star Export House.
·
The AD Category – I bank is satisfied that
the exporter is KYC (Know Your Customer) compliant and is engaged in the
proposed business and meets the requirement as indicated at i) above.
·
Exporter has proven track record i.e.
overdue exports do not exceed 10 per cent of the average export realization of
preceding three financial years.
·
The exporter has not come under adverse
notice of any Government agency like Directorate of Enforcement, CBI and does
not appear in the exporters' caution list of the Reserve Bank or in the list of
defaulters to the banking system in India.
·
The amount of investment outside India does
not exceed 10 per cent of the average export realization of the preceding three
financial years or 200 per cent of the net owned funds of the firm, whichever
is less.
3. For
obtaining approval, an application in form ODI may be made to the Chief General
Manager, Reserve Bank of India, Foreign Exchange Department, Overseas
Investment Division, Central Office, Amar Building, 5th Floor,
Fort, Mumbai 400 001, through the AD.
4. AD
may forward the applications to the Reserve Bank along with their comments and
recommendations, for consideration.
VI. Overseas Investment by Trust/society.
Post Investment Changes/ Additional
Investment in existing JV/WOS
1.
The JV/WOS established abroad may diversify
its activity/set up step down subsidiary/ alter shareholding pattern under the
automatic route.
2.
In case of financial services company, the
condition for establishment of such JV/WOS is required to be complied with.
3.
REPORTING:-
The India party should report the details of such decision to the RBI within 30 days
of approval for those decision by competent authority of JV/WOS abroad
in terms of home country.
4.
The details of the same should also be
included in APR (part III of ODI).
Restructuring of Balance sheet of
overseas JV/WOS involving write off of capital and receivables:--
1. Indian
party (promoter) which has established WOS/ JV (atleast 51% stake) may write
off the capital (equity and preferences) and other receivables such as loan,
technical knowhow fees, royalty, management fees etc. in respect of such JV/WOS
even if such entity is in function.
2. AUTOMATIC ROUTE:-- Indian Listed Company are allowed to write
off the capital and other receivables upto 25% of equity investments in JV/WOS.
3. APPROVAL ROUTE:-- Unlisted Company are allowed to write off
the capital and other receivables upto 25% of equity investments in JV/WOS.
4.
REPORTING:-
The write off should be reported to the RBI
through AD within 30 days of the
event.
5.
The Indian party should submit the
following documents for scrutiny along with application/reporting to AD both
automatic as well as approval route:--
·
Certified true copy of balance sheet of
overseas JV/WOS.
·
Projection for the next five years showing
benefit accruing to the Indian Party consequent to such write
off/restructuring.
Acquisition of a foreign company through
bidding or tender procedure:--
An Indian party may
remit earnest money deposit or issue a bid bond guarantee for acquisition of a
foreign company through bidding and tender procedure and also make subsequent
remittances through an AD in accordance with the provisions of Regulation 14 of
the Notification.
Obligations of Indian Entity:-
Indian party making
investment in JV/WOS abroad has the following obligations:--
1.
Receive share certificates or other
documents as evidence for investment within 6 months of remittance or capitalization of export or other
dues.
2.
Repatriate to India all the due receivable
like dividend, royalty etc. from JV/WOS
abroad within 60 days.
3.
Submit to the RBI Annual Performance Report
(APR i.e part III of ODI) within
3 months of closing of annual accounts of JV/WOS.
TRANSFER
BY WAY OF SALE OF SHARES OF JV/WOS
Automatic Route
Case I- No write off the investment made
Indian Party may
transfer the shares or other securities held in JV/WOS to another Indian Party
who is eligible to make investment in JV/WOS abroad or any PROI under the
automatic route, if following conditions are satisfied:--
1.
The sale does not result in write off of
the investment made.
2.
The sale is effected through the STXs where
the Overseas JV/WOS is listed.
3.
If the shares is not listed, then the share
price is not less than the value certified by CA/CPA as fair value of the
shares based on the latest audited accounts of JV/WOS.
4.
The
Indian Party does not have any outstanding dues from JV/WOS abroad by way of
dividend, royalty, commission, export proceeds etc.
5.
The JV/WOS abroad has been in operation for
one full year and the APR for the same is submitted to RBI along with audited
accounts for that year.
6.
The Indian party is not under the
investigation by CBI/IRDA/SEBI etc.
REPORTING:--
Indian
party is required to submit the details of such disinvestment through AD within
30 days from the date of Investment.
Case II- Involving write off the
investment made
Indian party are
allowed to disinvest in JV/WOS abroad under the automatic route in the
following cases, if the amount
repatriated after investment is less than the amount originally invested
:--
1.
Overseas JV/WOS is listed on overseas STXs.
2.
Indian party is a listed company and net
worth is not less than Rs. 100 Crores.
3.
Indian party is a listed company with net worth less than Rs. 100 crores but
the investment in overseas JV/WOS does not exceed USD 10 Million.
4.
Indian party is an unlisted company and
investment in overseas JV/WOS does not exceed USD 10 Million.
Conditions:-
The above
disinvestment under the automatic route shall satisfied all the conditions and
criteria as in case of disinvestment without write off of investment made
except the condition 1 relating to sale does not result in disinvestment made.
Reporting requirement as above is also required to be complied with.
Approval
Route : --
An Indian party
which does not the satisfied the conditions and criteria laid down for disinvestment in JV/WOS abroad is
required to obtain the prior permission of RBI for disinvestment.
Pledge of shares of JV/WOS abroad:-
Pledge
to AD Bank/ Public Financial institution (PFI) in India :- Indian Party may pledge
the shares to AD Bank or PFI in India for availing any credit facility either
for itself or for JV/WOS abroad.
Pledge
to Overseas lender:- The
Indian party may also by way of pledge the shares in JV/WOS abroad to overseas
lender, if overseas lender is a bank and total financial commitment of Indian
party in overseas JV/WOS is within the
limit of 400% of NW.
Hedging of Overseas Direct Investments:-
Indian party having overseas investment is permitted to hedge the foreign
exchange rate risk arising out of such investment.
