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India-Overseas Direct Investment_05052012
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India-Overseas Direct Investment_05052012

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The Presentations summarizes the regulatory framework relating to investment outside India by companies registered in India.

The Presentations summarizes the regulatory framework relating to investment outside India by companies registered in India.

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  • 1. OVERSEAS DIRECT INVESTMENT (ODI)
  • 2. Overseas Direct Investment (ODI) Overseas Direct Investment (ODI) means investments by way of contribution to the capital or subscription to the Memorandum ofAssociation of a foreign entity i.e. setting up a Joint Venture (JV) or a Wholly Owned Subsidiary (WOS)) in foreign country.
  • 3. General Permission • Out of Funds held in Resident Foreign Currency (RFC) Account; • As Bonus shares on existing holding of foreign currency shares; and • When not permanently resident in India, out of their currency resources in India General Permission is also available to sell the shares so purchased or acquired Regulation 4 of FEM (Transfer or Issue of any Foreign Security) Regulations, 2004
  • 4. General Permission General Permission has been granted to PRI Individuals: •to acquire foreign securities as a gift from any person resident outside India; •to acquire shares under cashless Employees Stock Option Programme (ESOP) issued by a company outside India, provided it does not involve any remittance from India; •to acquire shares by way of inheritance from a person whether resident in or outside India;
  • 5. General Permission •to purchase equity shares offered by a foreign company under its ESOP Schemes, if he is an employee or a director of an Indian office or branch of a foreign company or of a subsidiary in India of a foreign company or an Indian company in which foreign equity holding, either direct or through a holding company/Special Purpose Vehicle (SPV), is not less than 51 per cent. Such shares can be repurchased by the Foreign Companies. C.1 (Page 23) Master Circular on Direct Investment by Residents in JV/ WOS Abroad dated July 01, 2011
  • 6. General Permission Residents are permitted to acquire a foreign security, if it represents • qualification shares for becoming a director of a company outside India provided it does not exceed 1 per cent of the paid up capital of the overseas company and the consideration for the acquisition does not exceed USD 20,000 in a calendar year; • Right Shares; • Purchase of Shares of JV/ WOS abroad engaged in Software by employees/ directors upto USD 10,000 per employee in a block of five years. Maximum Limit 5% of paid up capital by all the employees/ directors.(Pre holding by Indian promoter company shall not fall below post holding)
  • 7. General Permission •Purchase of foreign securities by employees/ directors under ADR/ GDR linked stock option provided purchase consideration doesn’t exceed USD 50,000 in a block of five calendar years C.3 (Page 24) Master Circular on Direct Investment by Residents in JV/ WOS Abroad dated July 01, 2011
  • 8. Automatic Route • The Indian Party can invest up to 400 per cent of its net worth. The above ceiling includes contribution to the capital of overseas JV/ WOS, 50% of the performance guarantee and 100% of other guarantees issued to/ on behalf of JV/ WOS. Note: The ceiling of 400% of net worth will not be applicable if the investment is made out of balances held in the EEFC account of the Indian party or out of funds raised through ADRs/GDRs. Indian Party: An Indian Party is a company incorporated in India or a body created under an Act of Parliament or a partnership firm registered under the Indian Partnership Act 1932 and any other entity in India as may be notified by the Reserve Bank. When more than one such company, body or entity makes investment in the foreign entity, such combination will also form an “Indian Party”.
  • 9. Automatic Route • The Indian Party is not on the Reserve Bank’s exporters caution list or list of defaulters circulated by RBI/ CIBIL or under investigation by the Directorate of Enforcement or any investigative agency or regulatory authority; and • An Indian Party may acquire shares of a foreign company engaged in a bonafide business activity, in exchange of ADRs/ GDRs issued in accordance with FCCB scheme, 1993. • In case where invocation of performance guarantees breach the ceiling for the financial exposure of 400% of the net worth of the Indian Party, the Indian party shall seek the prior approval of RBI before remitting funds from India.
  • 10. Automatic Route• An Indian party may acquire shares of a foreign company engaged in a bonafide business activity, in exchange of ADRs/GDRs issued to latter in accordance with the scheme for issue of Foreign Currency Convertible Bonds and Ordinary Shares ( through Depository Receipt Mechanism) Scheme, 1993.• All Transaction relating to JV/WOS should be routed through one branch of an Authorised Dealer bank to be designated by the Indian party.• Indian parties are permitted to issue corporate guarantees on behalf of their first level step down operating JV/WOS set up by their JV/WOS operating as a Special Purpose Vehicle(SPV) subject the condition that the financial commitment of the Indian Party is within the extant limit for overseas direct investment. Setting up of an SPV under the Automatic Route is permitted for the purpose
  • 11. Automatic Route• Setting up of an SPV under the Automatic Route is permitted for the purpose.• Indian Party is permitted to capitalize the payments due from foreign entity towards exports, fees, royalties or any other dues for supply of technical know how, consultancy, managerial and other services within the ceilings applicable.B.1 (Page 5) Master Circular on Direct Investment by Residents in JV/ WOS Abroad dated July 01, 2011• Portfolio Investment Scheme by listed Indian Co.s upto 50% of thir net worth• Investment in Mutual Funds within overall cap of USD 7 billionB.6 (Page 13) Master Circular on Direct Investment by Residents in JV/ WOS Abroad dated July 01, 2011
  • 12. Approval Route• Where invocation of the performance guarantees breach the ceiling for the financial exposures of 400 percent of the net worth of the Indian Party.(iii), 3, B1 (Page 6) Master Circular on Direct Investment by Residents in JV/ WOS Abroad dated July 01, 2011• Investment in real estate or banking business except development of townships, construction of residential/ commercial premises, roads or bridgesA. 3 (Page 4) Master Circular on Direct Investment by Residents in JV/ WOS Abroad dated July 01, 2011• For creation of charge on immovable property and pledge of shares of the Indian parent/group companies in favor of a non-resident entity.Foot Note (Page 6) Master Circular on Direct Investment by Residents in JV/ WOS Abroad dated July 01, 2011
  • 13. Approval Route • Investment by way of swap of shares. (e) (iv), 3, B1 (Page 7) Master Circular on Direct Investment by Residents in JV/ WOS Abroad dated July 01, 2011 • Indian Parties whose name appear in the Defaulters’ list. (i) B1.2 (Page 9) Master Circular on Direct Investment by Residents in JV/ WOS Abroad dated July 01, 2011 • Investment in excess of 400% of the net worth of an Indian Party. (2). B.2 (Page 10) Master Circular on Direct Investment by Residents in JV/ WOS Abroad dated July 01, 2011 • For export to an overseas software start up company by Indian Software exporters upto 25% of the value of their exports. (2). B.4 (Page 12) Master Circular on Direct Investment by Residents in JV/ WOS Abroad dated July 01, 2011
  • 14. Approval Route • Investment by Trusts or Societies. B.10 (Page 17) Master Circular on Direct Investment by Residents in JV/ WOS Abroad dated July 01, 2011 • All other cases which do not fall under Automatic Route. (f) C.1 (Page 24) Master Circular on Direct Investment by Residents in JV/ WOS Abroad dated July 01, 2011
  • 15. Valuation • Where investment is more than USD 5 million or investment is done by Swap of Shares, valuation of shares shall be done by Cat I Merchant Banker or Investment Banker/Merchant Banker of Host Country • In all other cases by a C.A. or C.P.A. (d) (3) B.1 (Page 7) Master Circular on Direct Investment by Residents in JV/ WOS Abroad dated July 01, 2011
  • 16. Method of Funding •Drawal of Foreign Exchange from AD bank. •Capitalization of exports. •Swap of Shares •Proceeds of ECB/ FCCB •In exchange of ADR/GDR •Balance held in EEFC A/c •Proceeds of ADR/ GDR (1) B. 3 6. (Page 11) Master Circular on Direct Investment by Residents in JV/ WOS Abroad dated July 01, 2011
  • 17. Transfer of shares without Write Off No Approval Required if: •Sale is effected through stock exchange, if listed, •In other cases, share price is not less than fair value, •Indian party doesn’t have outstanding dues by way of dividend/ technical know how etc, •Overseas concern is in operation for at least one full year, and •Indian party not under investigation B. 15 (Page 20) Master Circular on Direct Investment by Residents in JV/ WOS Abroad dated July 01, 2011
  • 18. Transfer of shares involving Write Off No Approval Required if amount repatriated after disinvestment is less than the original amount invested: •Where JV/ WOS is listed •Where Indian party is listed and Net Worth not less than 100 crore, or Net Worth less than 100 Crore but investment in JV/ WOS doesn’t exceed USD 10 Million •Where Indian party is unlisted and investment doesn’t exceed USD 10 million. B. 16 (Page 21) Master Circular on Direct Investment by Residents in JV/ WOS Abroad dated July 01, 2011
  • 19. Investment in Financial Service SectorConditions: An Indian Party, iv.Should be engaged in Financial sector v.be registered with the regulatory authority in India for conducting the financial sector activities; vi.has earned net profit during the preceding three financial years from the financial services activities; vii.has obtained approval from the regulatory authorities concerned both in India and abroad for venturing into such financial sector activity; and viii.has fulfilled the prudential norms relating to capital adequacy as prescribed by the concerned regulatory authority in India. (1) B. 5 (Page 12) Master Circular on Direct Investment by Residents in JV/ WOS Abroad dated July 01, 2011
  • 20. Liberalised Remittance Scheme (LRS) as ODI: •Under LRS, all resident individuals, including minors, are allowed to freely remit up to USD 200,000 per financial year for any permissible current/ capital account transaction. •Resident Individuals can acquire and hold immovable property or shares or debt instruments or any other assets outside India, without prior approval of the Reserve Bank. •Purchase of FCCBs issued by Indian Companies in Overseas Secondary Market and Setting up of Company abroad is not allowed.
  • 21. THANK YOU