Post on 13-May-2015
transcript
“The Most Extraordinary Country”*
Doing Business in India
When You Think INTERNATIONAL,
Think Fulbright.TM
Tuesday, February 20, 20077:15 - 9:00 a.m.The Houstonian Hotel111 North Post Oak LaneHouston, Texas 77024
*Mark Twain
Foreign Investment in India: An Overview
Presented by: Julie B. HuntEmail: jhunt@fulbright.com
Phone: (214) 855-8046
Recent Growth & Opportunities in the Indian Market
Facts and Figures
Recent GDP Growth
2000-2003 4.6%
2003-2004 8.5%
2004-2005 7.5%
2005-2006 8.4%
2006-2007 (Q1) 8.9%
Source: Reserve Bank of India
Recent Growth & Opportunities in the Indian Market (cont’d)
Facts and Figures
Foreign Investment Growth
Source: Ministry of Finance, Government of India
Recent Growth & Opportunities in the Indian Market (cont’d)
Facts and Figures Population of more than 1 billion Middle class of 300 million Stable democracy with a common law legal system Large English-speaking, highly educated workforce Vibrant capital markets – 23 stock exchanges with
9000 listed companies New Industrial Policy (1991) and continuing
liberalization of foreign investment
Foreign Investment - Legal Regime
Sources of Law and Policy Foreign Exchange Management Act, 1999 (FEMA)
and related regulations Press notes issued by the Ministry of Commerce and
Industry Securities & Exchange Board of India Act, 1992 and
related regulations Companies Act, 1956 Sector-specific laws and rules
Foreign Investment - Legal Regime
Key Regulatory Players Foreign Investment Promotion Board (FIPB) Reserve Bank of India (RBI) Securities & Exchange Board of India (SEBI) Stock Exchanges (Largest: National Stock Exchange
(NSE), Bombay Stock Exchange (BSE)) Sector-specific regulators (e.g., insurance, telecom,
transportation)
Foreign Investment - Options
Three Main Routes for Foreign Investment Foreign Direct Investment (FDI) Investment as a Foreign Institutional Investor (FII) or
a sub-account of an FII Investment as a Foreign Venture Capital Investor
(FVCI)
Foreign Investment - Options
Foreign Direct Investment (FDI) Subscription to new shares Transfer of existing interests
Foreign Investment - Options
Foreign Direct Investment (FDI) Automatic Route
No approval needed from FIPB or the RBI
Widely available, subject to certain percentage caps and non-compete restrictions
Requires certain after-the-fact filings and declarations with the RBI (within 30 days after payment for investment)
Foreign Investment - Options (cont’d)
Foreign Direct Investment – Approval Route Automatic Route not available (i.e., prior FIPB
approval is required) if the investment is:
in an area where foreign investment is prohibited; for example: retail trading (except single brand retail), gambling, atomic energy, defense
above the equity cap applicable to certain sectors; for example: 74% in telecom, mining or banking.
Foreign Investment - Options (cont’d)
Foreign Direct Investment – Approval Route
Automatic Route not available if the investment is: in the same field where the foreign investor has an
existing (pre-Jan 15, 2005) collaboration/joint venture in India
a more than 24% equity investment in companies which manufacture for the small-scale sector.
Foreign Investment - Options (cont’d)
Foreign Direct Investment – Approval Route Approval Route
Any investment not qualifying for the Automatic Route Requires prior approval from the Foreign Investment
Promotion Board (FIPB)
Foreign Investment - Options (cont’d)
Foreign Direct Investment – Approval Route Approvals take approximately 30 days to obtain,
decided on a case-by-case basis
Relevant criteria: the amount of investment jobs creation other benefits to India such as export creation or
technology development
Foreign Investment - Options (cont’d)
Foreign Direct Investment (FDI)Pricing Restrictions
If listed on a stock exchange, price cannot be lower than the average weekly high and low of closing prices during the preceding (a) 6 months, or (b) 2 weeks, whichever average is higher
If unlisted, determined by a formula prescribed by the Controller of Capital Issues
Foreign Investment - Options (cont’d)
Foreign Direct Investment (FDI) Transfers of Existing Shares – requires FIPB approval
if: activities are not under the Automatic Route non-resident shareholding would exceed sectoral limits price does not comply with the pricing restrictions
Transfers of Existing Shares – requires RBI approval if: company is involved in the financial services sector price does not comply with the pricing restrictions
Foreign Investment - Options (cont’d)
Foreign Institutional Investors (FII) What is an FII?
An institution established outside India, which invests in securities traded on the primary and secondary markets in India
Examples: pension funds, mutual funds, investment trusts, university endowment funds
Foreign Investment - Options (cont’d)
Foreign Institutional Investors (FII) Foreign investment banks are not permitted to
directly invest in shares on the Indian stock exchange Makes investments on behalf of foreign investors,
referred to as “sub-accounts”
Foreign Investment - Options (cont’d)
Foreign Institutional Investors (FII) Qualifying as an FII
Requires a certificate from the Securities and exchange Board of India (SEBI)
Strict qualification standards including professional experience requirements and reputational considerations (“Fit and proper person” determination)
Foreign Investment - Options (cont’d)
Foreign Institutional Investors (FII) SEBI “Fit and proper person” criteria include:
financial integrity absence of convictions or civil liabilities competence good reputation and character efficiency and honesty no violation of securities regulations in home
jurisdiction
Foreign Investment - Options (cont’d)
Foreign Institutional Investors (FII) Qualifying as a Sub-Account
Also requires a fit and proper person analysis
Foreign Investment - Options (cont’d)
Foreign Institutional Investors (FII) FIIs may invest in:
securities in the primary and secondary markets (shares, debentures, warrants of listed and unlisted companies)
units issued by domestic mutual funds dated Government securities derivatives traded on a recognized stock exchange commercial paper debt instruments – provided a 70/30 equity/debt ratio is
maintained
Foreign Investment - Options (cont’d)
Foreign Institutional Investors (FII) Limits on the type and amount of investments apply
to FIIs no more than 10% of the equity in any one company no more than 10% in the equity in any one company on
behalf of a fund sub-account no more than 5% in the equity in any one company on
behalf of a corporate/individual sub-account no more than 24% in the aggregate of the total issued
capital of a company to be held by FIIs
Foreign Investment - Options (cont’d)
Foreign Venture Capital Investors (FVCI) What is an FVCI?
An investor established outside of India, who proposes to make venture capital investments in India
Foreign Investment - Options (cont’d)
Foreign Venture Capital Investors (FVCI) Qualifying as an FVCI
Requires registration with SEBI; a copy of the application is forwarded to the RBI for approval as well
Involves a “fit and proper person” determination as for FIIs
Foreign Investment - Options (cont’d)
Foreign Venture Capital Investors (FVCI) Benefits of registering as an FVCI
one-time approval of the RBI for investments in Indian companies
ability to purchase or sell securities at a price that is mutually acceptable to buyer and seller
shares held by FVCI in an unlisted company are not subject to the one-year lock-in generally applicable to the shares of a company undergoing an IPO
Foreign Investment - Options (cont’d)
Foreign Venture Capital Investor (FVCI) Investment Requirements and Restrictions
At least 66.67% of its funds must be invested in unlisted equity shares (or equity-linked instruments of unlisted entities)
Up to 33.33% of its funds may be invested in an IPO subscription for a venture capital undertaking, or through a preferential allotment of equity shares of a listed company
Foreign Investment - Options (cont’d)
Foreign Venture Capital Investor (FVCI) Investment Requirements and Restrictions
Subject to certain sectoral percentage caps, limitations on foreign investment
No more than 25% of its funds may be invested in any one venture capital undertaking
Project Finance - Infrastructure
“Infrastructure Deficit” requiring estimated investments of US $300 billion by 2012
FDI of up to 100% is now permitted in most infrastructure sectors
Shortage of domestic funding Particular emphasis on power sector, airports, roads
Recent Deals
Mumbai and Delhi airports – Public/Private Partnership (PPP) with 26% government participation
Vodafone – $11.1 billion purchase of a 67% stake in Hutchison Essar (fourth largest mobile phone company in India)
Airbus – announced $1 billion investment in an engineering facility and pilot training school
Cisco – investing $1.1 billion in various initiatives (manufacturing facility, VC investments, broadband and digital media), and planning to move 20% of top executives to India
Future Prospects
Projections for future growth Continued annual GDP growth of 8% GDP of US $11 trillion by 2011, US $27 trillion by
2050 (making India the third-largest economy in the world)
Trend of increasing liberalization of foreign investment
In Summary
Three main regulatory categories of foreign investment: FDI, FII, FVCI
Certain sector caps and pricing restrictions may apply Infrastructure development is a particular focus for
the Government Regulations continue to evolve
When You Think INTERNATIONAL,Think Fulbright.TM