Indo Japan Trade and Investment Bulletin, july 2014
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Indo Japan Trade and Investment Bulletin, july 2014

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INDO-JAPAN TRADE & INVESTMENT HIGHLIGHTS: Daido Steel to buy stake in India’s Sunflag, Foreign companies manufacturing in India can sell directly to online customers, Indians to 'guide' Nissan in ...

INDO-JAPAN TRADE & INVESTMENT HIGHLIGHTS: Daido Steel to buy stake in India’s Sunflag, Foreign companies manufacturing in India can sell directly to online customers, Indians to 'guide' Nissan in car making, India may soon sign first bilateral advance-pricing pact with Japan, India’s Tide Water Oil Co signs JV with JX Nippon Oil & Energy Corp, Panasonic to launch e-stores in India, Mitsubishi bets big investment on India, Japan’s Dentsu Aegis buys controlling stake in India’s Milestone Brandcom, Japan's SBS Holdings Buys India’s Transpole Logistics, Japan may finance Mumbai Trans-Harbour link, JBIC invests $10.5M in Takshasila Hospitals
And , KNOWLEDGE CENTRE : Transfer of shares under FEMA Regulations

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  • 1. 2014 Indo-Japan Trade & Investment Bulletin July Issue Japan Desk, Corporate Professionals
  • 2. Indo-Japan Trade & Investment Highlights  Daido Steel to buy stake in India’s Sunflag  Foreign companies manufacturing in India can sell directly to online customers  Indians to 'guide' Nissan in car making  India may soon sign first bilateral advance-pricing pact with Japan  India’s Tide Water Oil Co signs JV with JX Nippon Oil & Energy Corp  Panasonic to launch e-stores in India  Mitsubishi bets big investment on India  Japan’s Dentsu Aegis buys controlling stake in India’s Milestone Brandcom  Japan's SBS Holdings Buys India’s Transpole Logistics  Japan may finance Mumbai Trans-Harbour link  JBIC invests $10.5M in Takshasila Hospitals Knowledge Centre  Transfer of shares under FEMA Regulations INDEX
  • 3. Daido Steel to buy stake in India’s Sunflag Japan based Daido Steel Co. will buy 10 percent stake in Sunflag Iron & Steel Co. for around Rs 55.86 crore ($9 million approx..) through a preferential allotment to strengthen its presence in India. The two firms signed a share subscription agreement whereby the Japanese firm will be allotted 18 million shares at Rs 31 each. The investment is a part of expansion plan of the Indian operations of Daido after taking into consideration that India’s automobile market is growing at a fast pace. The two companies also entered into a technical assistance partnership in November 2010. Daido has been providing advice and support to Sunflag on capital investment. Now, Daido plans to buy the shares in Sunflag via third-party allotment. Daido expects that the Indian specialty steel market will see significant growth amid increasing domestic demand for automobiles and motorcycles and is also likely to grow as an export base. Foreign companies manufacturing in India can sell directly to online customers Foreign companies manufacturing in India will be allowed to engage in e-commerce retail sale even if they source products from third-party producers in the country. This comes as good news to brands such as Samsung, LG, Panasonic and Lenovo as they may now sell directly online to customers in India. But foreign companies that arrived in India as retailers will not be allowed to do so. Foreign direct investment (FDI) in the manufacturing sector in India was in the automatic approval list and now, foreign companies manufacturing in India would be allowed to sell their products through retail, including e-commerce platforms, without any additional clearance from the government. Sony has been exploring the possibility of setting up a manufacturing plant in India. It is expected that now, it could get expedited with the budget announcement proposal. Further, for electronics firms that have already invested a few thousand crores of rupees in India Panasonic, the development is a welcome one. Panasonic India Managing Director Manish Sharma Indo-Japan Trade & Investment Highlights
  • 4. welcomed this development and said that they can now showcase their products which are manufactured in India, such as laptops and desktops, with full details. Indians to 'guide' Nissan in car making Japanese auto giant, Nissan, has revamped its strategies for India to make a renewed pitch. It is developing three new vehicles for global markets and the centre of all these development processes is not an American, European or Chinese consumer but an Indian one. Till now, the company has had small presence in the Indian market, with a market share of only 1.5 per cent. Nissan has invested more than Rs 15,000 crore ($2.5 billion) in India along with Renault, Nissan aims to take on Maruti Suzuki, Hyundai, Mahindra & Mahindra. According to data from the Society of Indian Automobile Manufacturers Nissan clocked 3 % growth in sales at 38,220 units last year. The company is looking at doubling volumes in India. India may soon sign first bilateral advance-pricing pact with Japan Indian tax authorities are soon expected to sign their first bilateral advance-pricing agreements (APAs) with Japanese trading companies. These agreements are aimed at avoiding conflicts with multinational companies over sharing of taxes between India and the countries where these firms are based. Tax officers often dispute pricing of transactions between related parties. Bilateral APAs give certainty that the price declared using the agreed approach won't be frowned upon in either of the countries concerned. An official from finance ministry said that the Japanese delegation came to India in April and an Indian delegation will go to Japan next month and the first bilateral APA might be signed soon. Bilateral APAs are likely to be signed in sectors like information technology, consumer electronics, telecommunications and manufacturing. General trading companies of Japan, called Sogo Shosha, are eager on finalizing the agreements as soon as possible so that their investments in India have tax certainty. India’s Tide Water Oil Co signs JV with JX Nippon Oil & Energy Corp Tide Water Oil Co, a lubricant manufacturing company of India and a member of the Andrew Yule Group, recently entered into an agreement with Japan's JX Nippon Oil & Energy Corp to form a joint venture company in India by the name of JX Nippon TWO Lubricants India. JX
  • 5. Nippon Oil & Energy Corp is Japan's largest oil company with interests in refining, manufacturing and selling petroleum products, and in the energy sector. Tide Water Oil is one of the leading players in the Indian lubricant industry. It manufactures and markets Veedol brand of lubricants. Both companies are proposed to have equal stake in the Joint Venture entity. The joint venture will sell, market, distribute and manufacture the 'Eneos' brand of lubricants in India, Nepal, Bangladesh and Bhutan. It will also be responsible for the Genuine Oil requirements of the Japanese and Korean equipment manufacturers in the automotive and industrial segments. In 1993, Tide Water Oil had entered into a technical collaboration with Mitsubishi Oil Co to market its lubricants in India. This partnership continued with Nippon Oil Corp when it merged with and absorbed Mitsubishi Oil in the year 1999. Panasonic to launch e-stores in India Japanese major Panasonic Corp. plans to start selling its products directly to its Indian consumers through “E-Store” after the Indian government in the Union budget 2014 announced its plan to allow the foreign manufacturers to take up the online route. Taking into consideration the increasing trend of online shopping in India, Panasonic will launch ‘Panasonic’s e-store’, where the company will showcase its range of products. The e-store will showcase on the portal its products such as kitchen and home appliances, washing machines and air conditioners manufactured in India. Several factors such as large customer base, increasing penetration of Internet connectivity and growing popularity of online shopping across cities have led to the growth of online retailing in India. It is expected to help the company expand its reach, speed and certainty of delivery to consumers and also with new demand insights that can be mined and used for enhancing sales. Mitsubishi bets big investment on India Japan’s Mitsubishi Corporation is seeking Indian expertise and has major investment plans for India. Mitsubishi president and CEO, Ken Kobayashi is keen to discuss with the Indian Prime Minister, Narendra Modi and his key cabinet ministers. Apart from a joint venture with TCS, Mitsubishi is looking for an Indian partner to launch light commercial vehicles in India. In addition, Mitsubishi is also looking to import shale gas-based liquefied natural gas into India,
  • 6. which a segment is having a lot of demand attributing to the low production levels in India. Further, Kobayashi also plans to discuss possible investments in the Delhi-Mumbai and Chennai-Bangalore industrial corridors. At present, the company has a tie up to sell its vehicles in India in partnership with Hindustan Motors. Japan’s Dentsu Aegis buys controlling stake in India’s Milestone Brandcom Japan’s Dentsu Aegis Network acquired majority stake in India’s Milestone Brandcom, which is one of the biggest out-of-home agencies in India. Dentsu Aegis Network is on the edge of becoming a leading player in the Out-of-Home (OOH) market in India after the acquisition of Milestone Brandcom, along with Posterscope. Milestone Brandcom is one of the fastest growing outdoor media agencies in India and is also the largest OOH company on the bases of billings. Nabendu Bhattacharyya will continue as CEO and Managing Director of Milestone Brandcom. CEO of Dentsu Aegis Network Asia Pacific, Nick Waters welcoming Nabendu and the team to the company, said that the acquisition is a significant step for the company to build a high quality and scaled group in India. Japan's SBS Holdings Buys India’s Transpole Logistics Tokyo based SBS Group is acquiring majority stake in Delhi (India) based logistic services provider Transpole Private Limited for USD 73.5 million. The acquisition would enable SBS to get access to Transpole’s resources and channels in India, China, Hong Kong, Korea, Malaysia and South East Asia. The Japanese company would be acquiring 66% shares in Transpole. The company would be acquiring shares of Everstone, Fidelity and part of the holding of founding members of the company providing an exit to existing PE investors of the Indian company. Fidelity had invested INR 600 million in the year 2011 and Everstone had invested INR 2,200 million in the year 2013. As a part of the acquisition, the entire preferred stock of the Indian company would be converted to common stock which would give SBS Holdings a 66% holding in the company along with common stock acquired from the founders.
  • 7. Japan may finance Mumbai Trans-Harbour link The Japanese International Cooperation Agency (JICA) may provide up to 80 percent loan to the Maharahstra government's Mumbai Trans Harbour Link (MTHL) project. Mumbai Metropolitan Region Development Authority (MMRDA) is implementing the mega-infrastructure project and an expert team from the Japan International Cooperation Agency visited Mumbai for discussing various issues. MMRDA Metropolitan Commissioner U.P.S. Madan said that the Japanese International Cooperation Agency team has given favourable indications over financing the MTHL and out of the total estimated cost of Rs.11,000 crore ($1.8 billion), they are expected to lend almost 80 percent, or Rs.8,800 crore to the project. A preliminary survey has also been carried out by Japanese International Cooperation Agency of the end points of the 22 km long MTHL. JICA will now work out several aspects of the project in detail and provide MMRDA with inputs to enhance constructability and shorten the construction period of the project. JBIC invests $10.5M in Takshasila Hospitals Japanese government controlled financial institution, Japan Bank for International Cooperation (JBIC) has invested Rs 63 crore ($10.5 million) in India-based Takshasila Hospitals Operating Pvt Ltd. Takshasila Hospitals is a joint venture between Japanese hospital chain operator Secom besides Toyota Tsusho Corporation and Kirloskar Group. Takshasila Hospitals runs a Bangalore- based multi-super specialty hospital under the banner of Sakra World Hospital. JBIC has invested through compulsorily convertible preference shares issued by Takshasila Hospitals. In the recent past, Hospitals chains have been attracting private equity firms with various deals.
  • 8. FEMA: Transfer of Shares under FEMA Regulations In terms of Section 2 (ze) of Foreign Exchange Management Act, 1999 (FEMA) "Transfer" includes sale, purchase, exchange, mortgage, pledge, gift, loan or any other form of transfer of right, title, possession or lien. Transfer of shares by a person resident in India to person resident outside India, as well as the transfer of shares by a person resident outside India to a person resident in India is a capital account transaction. In terms of Section 6(3) of the Foreign Exchange Management Act, 1999, the Reserve Bank of India (RBI) has the power to make regulations to prohibit, restrict or regulate the transfer of shares. Position in the Past: Prior to the enactment of FEMA, the transfer of shares of an Indian company by a non-resident person to another non-resident person did not require confirmation from RBI. However, the transfer of shares of an Indian company by a non-resident person to a resident person required confirmation from the RBI. The transfer of shares of an Indian company by a person resident in India to a person resident outside India required the permission of the Government of India followed by the approval of RBI. Developments over time: The above provisions of transfer of shares from non-resident to non-resident, from non-resident to resident and from resident to non-resident continued up to 29.09.2004, when the Ministry of Finance simplified foreign investment procedures. As per the Press Release dated 29.05.2004 issued by Ministry of Finance, permission of Government of India was not required for transfer of shares from a resident to a non-resident. In other words, from 29.09.2004, only RBI approval was required for transfer of shares by resident to non-resident. After this simplification, RBI approval was still required in two cases of transfer of shares: (i) for transfer of shares by a non-resident to a Knowledge Center
  • 9. resident, and (ii) for transfer of shares by resident to non-resident. This means that for any transfer of shares between a resident and a non-resident, only RBI approval was required. Within a few days of the above Press Release of Ministry of Finance simplifying the investment procedures, RBI came out with an A.P. (DIR Series) Circular No. 16 dated 04.10.2004, further simplifying the procedure of transfer of shares. In terms of the above Circular, RBI granted general permission for transfer of shares/convertible debentures by way of sale under private arrangement, both from residents to non-residents, as well as from non-residents to residents, subject to pricing, documentation, payment/receipt and remittance in respect of the shares/convertible debentures and reporting requirements. This general permission, however, was not granted for transfer of shares from resident to non-resident in financial service sector (i.e. banks, NBFCs and insurance). After the simplification of procedure in 2004, prior permission of RBI was required for transfer of shares by way of gift from a resident to a non-resident. Further, in case of transfer of shares of an Indian company engaged in financial sector (i.e. banks, NBFCs and insurance), and transactions which attract the provisions of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, etc., by way of sale from a resident to a non-resident, the transferor was required to obtain prior approval of FIPB, Ministry of Finance & Company Affairs, Government of India followed by permission from RBI. The above two stage approvals were applicable even when the transfer was made on non-repatriation basis. Present Position: Present guidelines governing transfer of shares as contained in the Foreign Exchange Management (Transfer or Issue of Securities by a Person Resident Outside India) Regulations, 2000 are as follows: 1. A non-resident (other than NRI and erstwhile OCB) may transfer shares to any other non- resident (including NRIs but excluding erstwhile OCBs), by way of sale or gift. 2. NRIs may transfer the shares to another NRI, by way of sale or gift. 3. A non-resident can transfer any security to a person resident in India by way of gift.
  • 10. 4. A non-resident can sell the shares on a recognized Stock Exchange in India through a stock broker or a merchant banker registered with SEBI. 5. A non-resident can sell shares by private arrangement to a resident. Price for transfer of existing shares by non-resident to resident shall not be more than the minimum price at which the transfer of shares can be made from a resident to a non-resident. 6. A resident can sell shares (including transfer of subscriber‘s shares), of an Indian company under private arrangement to a non-resident. 7. The general permission for sale of shares by resident to non-resident and by non-resident to resident under private placement also covers transfer by a resident to a non-resident of shares/convertible debentures of an Indian company, engaged in an activity earlier covered under the Government Route but now falling under Automatic Route, as well as transfer of shares by a non-resident to an Indian company under buyback and/or capital reduction scheme of the company. 8. The Form FC-TRS has to be submitted to the AD Category-I Bank, within 60 days from the date of receipt of the amount of consideration. The onus of submission of the Form FC- TRS within the given timeframe would be on the transferor/transferee, resident in India. The sale consideration of the shares purchased by a non-resident, remitted into India through normal banking channels, shall be subjected to a Know Your Customer (KYC) check, and the KYC report has to be submitted by the customer to the AD Category-I bank carrying out the transaction along with the Form FC-TRS. The following cases require prior approval of RBI (i) Transfer of shares from resident to non-residents by way of sale where:  Transfer is at a price which falls outside the pricing guidelines specified by the Reserve Bank from time to time.  Transfer of shares where the non-resident acquirer proposes deferment of payment of the amount of consideration. Further, in case approval is granted for a transaction, the same should be reported in Form FC-TRS, to an AD Category-I bank for necessary due
  • 11. diligence, within 60 days from the date of receipt of the full and final amount of consideration. (ii) Transfer of shares by way of gift by a resident to a non-resident Reserve Bank considers the following factors while processing such applications:  The proposed transferee (donee) is eligible to hold such capital instruments under Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to time,  The gift does not exceed 5 per cent of the paid-up capital of the Indian company/each series of debentures/each mutual fund scheme.  The applicable sectoral cap limit in the Indian company is not breached.  The transferor (donor) and the proposed transferee (donee) are Relatives as defined under Companies Act, 1956. Please note that major provisions of Companies Act, 1956 has been repealed and replaced by Companies Act, 2013 and the meaning and definition of Relative has been provided under Section 2(77) of Companies Act, 2013 read with Rule 4 of Companies (Specification of definitions details) Rules, 2014, which are in force as on date.  The value of shares to be transferred together with any shares already transferred by the transferor, as gift, to any person residing outside India does not exceed the rupee equivalent of USD 50,000 per financial year.  such other conditions as stipulated by Reserve Bank in public interest from time to time. (iii) Transfer of shares from NRI to non-resident. (iv) Transfer of shares from or by erstwhile OCBs would require prior approval of the Reserve Bank of India.
  • 12. In the following cases, approval of RBI is not required: A. For transfer of shares by way of sale under private placement from a Non-Resident to Resident under the FDI scheme where the pricing guidelines under FEMA, 1999 are not met provided that:- i. The original and resultant investment comply with the extant FDI policy and FEMA regulations in terms of sectoral caps, conditionality (such as minimum capitalization, etc.), reporting requirements, documentation, etc.; ii. The pricing for the transaction is compliant with the specific/explicit, extant and relevant SEBI regulations / guidelines (such as IPO, Book building, block deals, delisting, exit, open offer/ substantial acquisition / SEBI SAST, buy back); and iii. Chartered Accountants Certificate to the effect that compliance with the relevant SEBI regulations / guidelines as indicated above is attached to the form FC-TRS to be filed with the AD bank. B. Transfer of shares from Resident to Non Resident: i) where the transfer of shares requires the prior approval of the FIPB as per the extant FDI policy provided that :  the requisite approval of the FIPB has been obtained; and  the transfer of share adheres with the pricing guidelines and documentation requirements as specified by the Reserve Bank of India from time to time. ii) where the transfer of shares attract SEBI (SAST) guidelines subject to the adherence with the pricing guidelines and documentation requirements as specified by Reserve Bank of India from time to time.
  • 13. iii) where the transfer of shares does not meet the pricing guidelines under the FEMA, 1999 provided that:  The resultant FDI is in compliance with the extant FDI policy and FEMA regulations in terms of sectoral caps, conditionalities (such as minimum capitalization, etc.), reporting requirements, documentation etc.;  The pricing for the transaction is compliant with the specific/explicit, extant and relevant SEBI regulations / guidelines (such as IPO, Book building, block deals, delisting, exit, open offer/ substantial acquisition / SEBI SAST); and  Chartered Accountants Certificate to the effect that compliance with the relevant SEBI regulations / guidelines as indicated above is attached to the form FC-TRS to be filed with the AD bank. iv) where the investee company is in the financial sector provided that:  NOCs are obtained from the respective financial sector regulators/ regulators of the investee company as well as transferor and transferee entities and such NOCs are filed along with the form FC-TRS with the AD bank; and the FDI policy and FEMA regulations in terms of sectoral caps, conditionalities (such as minimum capitalization, pricing, etc.), reporting requirements, documentation etc., are complied with. Shares purchased by NRIs and FIIs on the stock exchange under PIS cannot be transferred by way of sale under private arrangement or by way of gift to a person resident in India or outside India without prior approval of the Reserve Bank. However, NRIs can transfer shares acquired under PIS to their Relatives as defined under Companies Act, 1956 or to a charitable trust duly registered under the laws of India without obtaining prior approval of the Reserve Bank. Please note that major provisions of Companies Act, 1956 have been repealed and replaced by Companies Act, 2013 and the meaning and definition of Relative has been provided under Section 2(77) of Companies Act, 2013 read with Rule 4 of Companies (Specification of definitions details) Rules, 2014, which are in force as on date.
  • 14. All parties involved in the transaction would have the responsibility to ensure that the relevant regulations under FEMA are complied with and settlement of transactions will be subject to payment of applicable taxes, if any. DISCLAIMER: The document has been prepared and produced only for the information purpose only and is not to be construed as an advertisement, solicitation, invitation, personal communication or inducement of any kind by the firm, the author or any of its partner or associates. The entire content of this document has been developed on the basis of relevant statutory provisions and as per the information available at the time of the preparation. Though the author has made utmost efforts to provide authentic information, however, the material contained in this document does not constitute/substitute professional advice that may be required before acting on any matter. The author and the firm expressly disclaim all and any liability to any person who has read this document, or otherwise, in respect of anything, and of consequences of anything done, or omitted to be done by any such person in reliance upon the contents of this document.
  • 15. CONTACT US PANKAJ SINGLA Japan Desk, Corporate Professionals NEW DELHI D-28, South Extension Part - I, New Delhi – 110049 Tel: +91-11-40622200 Dir: +91-11-40622293 Fax: +91-11-40622201 Mob:+91-99715-08320 Email: pankaj@indiacp.com MUMBAI Mastermind- I, Royal Palms Estate, Aarey Colony, Goregaon (East), Mumbai -400065 Tel: +91 9820079664 Fax: +91 9810037390 BEDFORD (UNITED KINGDOM) 2-4 Mill Street, Bedford MK40 3HD U.K. Tel: +44 (0) 2030063240 Fax: +44 (0) 2030063241