Post on 02-Jun-2018
transcript
8/11/2019 Fedai 12thsept
1/44
DIRECT INVESTMENT BY RESIDENT
IN JOINT VENTURE ( JV ) / WHOLLYOWNED SUBSIDIARY ( WOS )ABROAD
1. Regulatory guidelines.2. Check list
3. Case studies
1
TO BE READ WITH LATEST RBIMASTER CIRCULAR & FEMAGUIDELINES
8/11/2019 Fedai 12thsept
2/44
ODI regulatory guidelines
Basic concepts An Indian party can make investment in JV or WOSnot exceeding 400% of Net Worth as on date oflast Audited Balance Sheet of the Indian party. Thisincludes total financial commitments of all JVs /WOS put together.Total financial commitment includes equity shares /convertible preference shares, preference shares,
loans & guarantees.Ceiling of 400% not applicable if investment madeout of EEFC a/c or funds raised through ADR /GDR.
2
TO BE READ WITH LATEST RBIMASTER CIRCULAR & FEMAGUIDELINES
8/11/2019 Fedai 12thsept
3/44
ODI regulatory guidelines Conditions of investment
Indian company can extend loan / guarantee to an overseasJV / WOS in which it has equity participation.
Any form of guarantee allowed provided that all financialcommitments are within overall ceiling, no guarantee is open-ended and reported to RBI.In event of invocation, if ceiling is breached, prior approval ofRBI required.Guarantees issued by Banks would be subject to RBI DBOD guidelines & reporting to RBI in ODI Part II
NOC from AD Bank required for creating charge onimmovable property/pledge of shares & subject to specifiedconditions.
3
TO BE READ WITH LATEST RBIMASTER CIRCULAR & FEMAGUIDELINES
8/11/2019 Fedai 12thsept
4/44
ODI regulatory guidelines Conditions of Investment
Indian entity should not be on Exporters Caution list /List of Defaulters of RBI / CIBIL / or any other creditinformation company as approved by RBI
All transactions to be routed through same AD
Acquisition of shares of a foreign company engaged in abonafide activity, in exchange for ADRs / GDRs ispermitted, subject to the condition that if the valuationis more than USD 5 Mn, certificate from Class I
merchant banker is required.
4
TO BE READ WITH LATEST RBIMASTER CIRCULAR & FEMAGUIDELINES
8/11/2019 Fedai 12thsept
5/44
ODI regulatory guidelines Issuance of guarantees
Indian entities can issue corporate guarantees onbehalf of their first level step down operating companyset up by the JV / WOS operating as an SPV under the
Automatic Route, within prevailing limit for ODI, underreport to RBI in Form ODI through designated ADCategory I Bank
In respect of second generation or further step down
subsidiary, issuance of such guarantees will beconsidered under the APPROVAL ROUTE , subject to thecondition that the Indian entity indirectly owns 51% ormore stake in overseas subsidiaries.
5
TO BE READ WITH LATEST RBIMASTER CIRCULAR & FEMAGUIDELINES
8/11/2019 Fedai 12thsept
6/44
ODI regulatory guidelinesInvestments in JV / WOS Methods of funding.
Drawal of Exchange from AD BankCapitalization of Exports & other dues
Swap of shares
Proceeds of ECBs / FCCBs
Balances in EEFC a/cs ( Without limit )
Proceeds of foreign currency funds raised through ADRs/ GDRs ( Without any limit )
6
TO BE READ WITH LATEST RBIMASTER CIRCULAR & FEMAGUIDELINES
8/11/2019 Fedai 12thsept
7/44
ODI regulatory guidelinesInvestment in JV / WOS Financial services sector
INVESTMENT IN FINANCIAL SERVICES SECTOR BYREGULATED ENTITIES :
Investing entity should be registered with theregulatory authority of India, having earned Net
Profit in preceding 3 F Ys, should have obtainedregulatory approval in India and abroad and shouldhave fulfilled prudential norms relating to capitaladequacy.
Additional investment by an existing JV / WOS orits step down subsidiary in the financial sector alsoneeds to comply with above conditions
7
TO BE READ WITH LATEST RBIMASTER CIRCULAR & FEMAGUIDELINES
8/11/2019 Fedai 12thsept
8/44
ODI regulatory guidelinesCapitalization of Export Proceeds
Capitalization of Export proceeds ( non-overduebills)Indian s/w cos. Permitted to receive 25% of valueof Exports as shares without JV agreement, with
prior RBI approval
8
TO BE READ WITH LATEST RBIMASTER CIRCULAR & FEMAGUIDELINES
8/11/2019 Fedai 12thsept
9/44
ODI regulatory guidelinesPROPRIETORSHIP / PARTNERSHIP CONCERNS
CONDITIONS FOR INVESTMENT :
The firm / concern should be a DGFT recognized
Star Export House
KYC Compliance
Exporter is engaged in the proposed business &has proven track-record - overdue exports do notexceed 10% of average export realizations in thepreceding 3 fin. Yrs.
9
TO BE READ WITH LATEST RBIMASTER CIRCULAR & FEMAGUIDELINES
8/11/2019 Fedai 12thsept
10/44
ODI regulatory guidelinesProprietorship/Partnership contd
CONDITIONS FOR INVESTMENT :
Exporter should not have come to the adverse
notice of any Govt. agency like ED / CBI and is nota defaulter Amt. of investment outside India not to exceed 10% of average export realization of preceding 3 fin.
Yrs. or 200 % of NOF ( Net owned funds ),whichever is lowerPrior RBI Approval to be sought in Form ODIPrior RBI Approval to be sought in Form ODI in
case of overseas investment by Regd. Trust /Society which is subject to certain conditions 10TO BE READ WITH LATEST RBIMASTER CIRCULAR & FEMAGUIDELINES
8/11/2019 Fedai 12thsept
11/44
ODI regulatory guidelinesMiscellaneous aspects
Post-Investment Changes includingdiversification /
Addl. investment in existing JV / WOS Indian party to report to RBI through AD Cat.IBank, details within 30 days of the approval by thecompetent authority of the JV / WOS concerned
Such details also to be reported in the AnnualPerformance Report ( APR Part III OF Form ODI)
Failure to submit the APRs & handling furtherremittances is under the approval route. 11
TO BE READ WITH LATEST RBIMASTER CIRCULAR & FEMAGUIDELINES
8/11/2019 Fedai 12thsept
12/44
ODI regulatory guidelinesPledge of foreign security by a person resident inIndia
Shares acquired by persons resident in India inaccordance
with FEMA Rules and regulations are allowed to bepledged for obtaining credit facilities in India from an
ADCat.- I Bank / Public fin. Instn.
Hedging by resident entities of ODI in equity and loanis
permitted
12
TO BE READ WITH LATEST RBIMASTER CIRCULAR & FEMAGUIDELINES
8/11/2019 Fedai 12thsept
13/44
GENERAL PERMISSION IN CERTAIN CASES
Residents are permitted to acquire foreign securities if it
represents :Gifts from Non residents / under ESOP / InheritanceQualification shares for becoming Director of a co. outsideIndia, subject to LRS ceiling.Part / Full consideration of professional services rendered tothe foreign companies or in lieu of Directors remuneration,subject to LRS ceiling.Rights shares provided that they are being issued by virtue ofholding shares in accordance with the law
Foreign securities under ADR / GDR linked stock optionschemes by resident employees of Indian cos. providedpurchase consideration does not exceed $50000Resident may transfer by sale, shares acquired & repatriateproceeds within 90 days
13
TO BE READ WITH LATEST RBIMASTER CIRCULAR & FEMAGUIDELINES
8/11/2019 Fedai 12thsept
14/44
OPERATIONAL INSTRUCTIONS TO AD BANKS
Designated branches only one branch to bedesignated. Different AD Banks for different JVs /WOS can be designated.
AD Banks can allow investments up to permissiblelimits. Application in Form ODI along with A2 to beobtained. All necessary documents andcompliances should be ensured by AD Bank
14
TO BE READ WITH LATEST RBIMASTER CIRCULAR & FEMAGUIDELINES
8/11/2019 Fedai 12thsept
15/44
Checklist Form ODI
Part I A- Details of the Indian EntityB- Details of Investment in the New ProjectC- Details of Investment in the Existing Project
D- Funding for JV/WOSE- Declaration by the Indian EntityF Statutory Auditors Certificate
Part II Reporting of remittances
Part III Annual Performance ReportPart IV Report on closure/Disinvestment/Winding
Up
15
TO BE READ WITH LATEST RBIMASTER CIRCULAR & FEMAGUIDELINES
8/11/2019 Fedai 12thsept
16/44
Checklist
The actual economic activity (activity code) carried onby the Indian entity to be ascertained on the basis ofthe main objects clause of its Memorandum ofAssociation and the latest audited financial statements.
The proposed economic activity to be undertaken by
the JV/WOS. ODI is not permitted in an entity engagedin real estate business, banking business, etc.
For undertaking activity in the financial sector,additional conditions under Regulation 7 is to be
fulfilled.Review of the ODI with respect to 400 % net worthas per the last audited financials & not exceedingUSD 1 Billion.,
16
TO BE READ WITH LATEST RBIMASTER CIRCULAR & FEMAGUIDELINES
8/11/2019 Fedai 12thsept
17/44
Checklist
Second/further remittances to be made only afterobtaining UIN from RBI.Remittances towards loan/issue of guarantees toor on behalf of the JV/WOS can be made only afterensuring that the Indian entity has equity stake inthe JV/WOS.Where laws of the host country permitincorporation of a company without equityparticipation by the Indian entity, prior approval of
RBI is to be obtained for remittances towards loanor issuance of guarantees.Share certificates/documents evidencinginvestments to be obtained within 6 months from
date of remittance. AD Bank to certify to this effectin the APR. 17TO BE READ WITH LATEST RBIMASTER CIRCULAR & FEMAGUIDELINES
8/11/2019 Fedai 12thsept
18/44
Checklist
Indian entity to submit the APR before 30 th Juneeach year to RBI through the AD Bank. In case offailure to submit the APRs, further remittances willbe effected under the approval route of RBI.ODI by Trust :- (a) the trust should be registeredunder the Indian Trust Act (b) the trust deedpermits proposed investment (c) the AD Bank issatisfied about the KYC & that the trust is engagedin a bonafide activity (d) The trust has been in
existence at least for a period of 3 years (e) notcome under the adverse notice of any regulatory orenforcement agency.
18
TO BE READ WITH LATEST RBIMASTER CIRCULAR & FEMAGUIDELINES
8/11/2019 Fedai 12thsept
19/44
Checklist
Societies:- (a)registered under the Societies RegistrationAct (b) The Memorandum of Association permit thesociety to make overseas investment (c) the AD Bank issatisfied on the KYC of the Society (d) the society is inexistence at least for a period of 3 years (e) The society
has not come under the adverse notice of theregulatory or enforcement authorities.
Documents :- Form ODI, Statutory Auditors certificate,Last audited financial statements, Share valuation
report, Copy of the MOA & AOA, Certification ofIncorporation of the Overseas entity, Form A2 and otherdocuments as prescribed by the AD Bank.
19
TO BE READ WITH LATEST RBIMASTER CIRCULAR & FEMAGUIDELINES
8/11/2019 Fedai 12thsept
20/44
Checklist
Disinvestment :- (a) the Overseas entity is inoperation for at least one full year & APR togetherwith audited accounts have been submitted to theRBI (b) The Indian entity should not have anyoutstanding dues by way of dividend, technical
know how fees, royalty, consultancy, from theJV/WOS (c) The Indian entity should havesubmitted the post investment documents (d)IfJV/WOS is listed on the stock exchange, saleshould be effected through the stock exchange(e)ifby private arrangement the AD Bank should ensurethat the share price is not less than the valuecertified by the CA/CPA based on the latestfinancials of the JV/WOS (f) reporting to RBI within30 days from the date of disinvestment. 20
TO BE READ WITH LATEST RBIMASTER CIRCULAR & FEMAGUIDELINES
8/11/2019 Fedai 12thsept
21/44
Checklist
Disinvestment of shares where the amount to berepatriated is less than the amount of originalinvestment:-
a) JV/WOS is listed in the Overseas Stock Exchangeb) Where the Indian entity is listed on a stock
exchange in India & has a net worth of not lessthan Rs. 100 Cr.
c) Where the net worth is less than Rs. 100 Cr & theinvestment does not exceed USD 10 Mn.
d) Where the Indian entity is unlisted and theinvestment does not exceed USD 10 Mn.
e) The documentary evidence for the realization ofthe sale proceeds to be submitted to the R.O ofRBI. 21
TO BE READ WITH LATEST RBIMASTER CIRCULAR & FEMAGUIDELINES
8/11/2019 Fedai 12thsept
22/44
CASE STUDIES
8/11/2019 Fedai 12thsept
23/44
Case Study 1ODI Co. A has a Net Worth of Rs.2 Crs. They areinterested in investing in a JV to the extent of Rs.10 Crs., of which Rs.5 Crs. would be in the form ofa Corporate Guarantee to be issued on behalf of
second level step-down subsidiary.Is this permissible ? How can the transaction behandled?What would be the procedure ?
What are the documents to be obtained ?
8/11/2019 Fedai 12thsept
24/44
Case Study 2 ODI
Co. A engaged in Software development has aNet Worth of Rs. 5 Crs. & is interested in investingin a JV to the extent of Rs. 25 Crs., out of EEFC
funds
Is this permissible ? How can the transaction behandled?
What are the documents to be obtained ?
8/11/2019 Fedai 12thsept
25/44
Case Study 3 ODI
Co. A , having a Net worth of Rs.25 Crs has a Jt.Venture in Malaysia , to which it has exportedgoods to the tune of Rs.20 Crs. The Co. desires to
covert the unrealized exports into equity
Is this permissible ? How can the transaction behandled and what are the attendant conditions ?
What are the documents to be obtained ?
8/11/2019 Fedai 12thsept
26/44
Case Study 4 ODI
Co. A , is a partnership concern interested ininvesting in a JV in Singapore
Is this permissible ? How can the transaction behandled and what are the attendant conditions ?
What are the documents to be obtained ?
8/11/2019 Fedai 12thsept
27/44
Case Study 5 ODI
Co. A , is a Limited company having a BranchOffice in US and interested in converting theBranch into a WOS.
Is this permissible ? How can the transaction behandled and what are the attendant conditions ?
What are the documents to be obtained ?
8/11/2019 Fedai 12thsept
28/44
Case Study 6 ODI
Co. XYZ a Limited company having dealings withSBI has received an inward remittance throughyour Bank towards disinvestment proceeds of their
subsidiary in Cayman Islands and intending totransfer the funds in foreign currency to SBI.
Is this permissible ? How can the transaction be
handled and what are the attendant conditions ?
What are the documents to be obtained ?
8/11/2019 Fedai 12thsept
29/44
Case Study 7 ODI
Co. ABC a Limited company dealing in stock &share brokings has received a proposal from anOverseas company which is into printing of security
paper & designs, for 100 % acquisition.
Is this permissible ? How can the transaction behandled and what are the attendant conditions ?
What are the documents to be obtained ?
8/11/2019 Fedai 12thsept
30/44
Case Study 8 ODI
In continuation of the previous case, is theprocedural guidelines/regulatory guidelines anydifferent,if ABC Co is not into stock & sharebrokings but into printing of security paper &designs but the Overseas company where 100 %acquisition is intended is into stock and sharebrokings.
Is this permissible ? How can the transaction behandled and what are the attendant conditions ?
What are the documents to be obtained ?
8/11/2019 Fedai 12thsept
31/44
FOREIGN INVESTMENTIN INDIA
8/11/2019 Fedai 12thsept
32/44
CASE STUDY 1FDI
ABC CO. INVOLVED IN FLORICULTURE ACTIVITY HASRECEIVED AN INTEREST EXPRESSION BY ONE OF THELEADING OVERSEAS FINANCIAL SERVICES COMPANYFOR EQUITY INVESTMENT THROUGH THE FDI ROUTE.FOR THEIR EXPANSION PURPOSES.
IS THIS PERMITTED ? IF SO, WHAT ARE THECONDITIONS TO BE FULFILLED ?
WHAT ARE THE PROCEDURAL GUIDELINES TO BE ADHERED TO ?
8/11/2019 Fedai 12thsept
33/44
CASE STUDY 2FDI
SYLVIA SMILES, A FOREIGN NATIONAL WORKING IN THEOVERSEAS BRANCH OF XYZ CO PVT LTD. DESIRES TOSELL THE SHARES ALLOTED TO HER THROUGH ESOPS
AND REPATRIATE THE REMITTANCE.
IS THIS PERMITTED ? IF SO, WHAT ARE THECONDITIONS TO BE FULFILLED ?
WHAT ARE THE PROCEDURAL GUIDELINES TO BE ADHERED TO ?
8/11/2019 Fedai 12thsept
34/44
CASE STUDY 3FDI
IN THE INSTANT CASE, XYZ CO. INFORMS THAT THEYWERE NOT AWARE OF THE REGULATORY GUIDELINES
AND HAVE NOT COMPLETED THE FORMALITIES.
IS THE REPATRIATION STILL POSSIBLE.? IF SO, WHAT ARE THE CONDITIONS TO BE FULFILLED ?
WHAT ARE THE PROCEDURAL GUIDELINES TO BE ADHERED TO ?
8/11/2019 Fedai 12thsept
35/44
CASE STUDY 4FDI
XYZ CO. HAS RECEIVED AN INWARD REMITTANCETOWARDS EQUITY PARTICIPATION INTO THEIRCOMPANY BY AN OVERSEAS COMPANY ENGAGED INMANUFACTURING ACTIVITIES.
WHAT ARE THE DOCUMENTATION FORMALITIES TO BECOMPLETED BEFORE PROCESSING THEREMITTANCES.?
WHAT ARE THE PROCEDURAL GUIDELINES TO BE ADHERED TO ?
8/11/2019 Fedai 12thsept
36/44
CASE STUDY 5FDI
IN CONTINUATION OF THE PREVIOUS CASE, XYZ CO.INFORMS THAT THIS IS A SUBSEQUENT REMITTANCEFOR EQUITY PARTICIPATION INTO THEIR COMPANY,THE FIRST SUCH REMITTANCE HAVING COMETHROUGH ANOTHER AD BANK UNDER THE FDI ROUTE.FOR THEIR EXPANSION PURPOSES.
WHAT ARE THE CONDITIONS TO BE FULFILLED ?
WHAT ARE THE PROCEDURAL GUIDELINES TO BE ADHERED TO ?
8/11/2019 Fedai 12thsept
37/44
CASE STUDY 6FDI
HAVING ALREADY RECEIVED THE EQUITYPARTICIPATION INTO THEIR COMPANY THROUGH
ANOTHER AD BANK EARLIER, XYZ CO., WHO IS NOWDEALING WITH YOUR BANK DESIRES TO REPATRIATETHE SALE PROCEEDS IN RESPECT OF SALE OFSHARES BY THE OVERSEAS INVESTOR.
IS THIS PERMITTED ? IF SO, WHAT ARE THECONDITIONS TO BE FULFILLED ?
WHAT ARE THE PROCEDURAL GUIDELINES TO BE ADHERED TO ?
8/11/2019 Fedai 12thsept
38/44
EXTERNAL COMMERCIALBORROWINGS
8/11/2019 Fedai 12thsept
39/44
CASE STUDY 1.ECB
XYZ INC. , USA IS AN EQUITY HOLDER IN XYZ INDIA,HOLDING EQUITY OF 27%XYZ INDIA DESIRES TO AVAIL ECB OF US$ 10 MN FROMXYZ INC., USA UNDER AUTOMATIC ROUTEIS THIS PERMISSIBLE ? IF SO, ARE THERE ANY OTHERCONDITIONS ?WHAT ARE THE DOCUMENTARY REQUIREMENTS ?
8/11/2019 Fedai 12thsept
40/44
CASE STUDY 2.ECB
SWEET DREAMS HOTELS LTD. HAS PLANS TO SET UP ATOURIST RESORT NEAR RATNAGIRI AND DESIRE TO
AVAIL ECB OF US$ 200 MIO FOR ACQUIRING LAND FORTHE PURPOSE.IS THIS PERMISSIBLE & IF SO, WHETHER UNDER
AUTOMATIC ROUTE OR APPROVAL ROUTE ?IF UNDER AUTOMATIC ROUTE, WHAT ARE THEFORMALITIES TO BE COMPLETED ?IF THE ECB IS BEING AVAILED FROM AN OVERSEASBRANCH OF AN INDIAN BANK, WHAT ARE THE
ADDITIONAL FORMALITIES?
8/11/2019 Fedai 12thsept
41/44
CASE STUDY 3ECB
PEACOCK AIRLINES DESIRES TO AVAIL ECB OF US$800 MN. FROM THEIR STRATEGIC PARTNER FORWORKING CAPITAL REQUIREMENTS.IS THIS PERMITTED ? IF SO, WHAT ARE THECONDITIONS TO BE FULFILLED ?
8/11/2019 Fedai 12thsept
42/44
CASE STUDY 4ECB
ABC DESIRES TO AVAIL ECB OF US$ 700 MN. FROM ADB TO CLEAR THEIR EXISTING RUPEE TERMSLOANS WITH AN AD BANK IN INDIA.IS THIS PERMITTED ? IF SO, WHAT ARE THECONDITIONS TO BE FULFILLED ?
8/11/2019 Fedai 12thsept
43/44
CASE STUDY 5ECB
IN CONTINUATION OF THE FACT THAT ABC HAS ALREADY AVAILED AN ECB FOR USD 700 MN FROM ADB,INTENDS TO RESCHEDULE/REPHAASE THE EXISITINGECB.IS THIS PERMITTED ? IF SO, WHAT ARE THECONDITIONS TO BE FULFILLED ?WILL THE PROCEDURE BE DIFFERENT HAD THE ECBBEEN AVAILED FROM AN OVERSEAS BRANCH OF ANINDIAN BANK.
8/11/2019 Fedai 12thsept
44/44
THANK YOU