Dear All,
Further to my email on the captioned subject, the RBI vide its AP DIR Circular No.11 & 12 dated 26 th Sept 2007 has amended Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004. This Regulation is dealing with overseas investments have been further liberalized, with immediate effect, as under:
1.Enhancement of limit for Overseas Direct Investment
As per Current provisions of Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004, the total overseas investment of an Indian party in all its Joint Ventures (JVs) and / or Wholly Owned Subsidiaries (WOSs) abroad engaged in any bonafide business activity should not exceed 300 per cent of its net worth for companies incorporated in India or bodies created under an Act of Parliament and 200 per cent of net worth in the case of registered partnership firms, under the automatic route.
With a view to provide greater flexibility to Indian parties for investments abroad, the existing limit of 300 per cent of the net worth of the Indian party (200 per cent in case of registered partnership firms) has been enhanced to 400 per cent of the net worth of the Indian party as on the date of the last audited balance sheet. This new enhanced limit will be applicable for both the Indian Companies and Indian Registered Partnership firm(Including Investment in Financial Services).
2. Portfolio Investment by Listed Indian Companies
As per Current provisions of Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004, listed Indian companies are permitted to invest up to 35 per cent of their net worth as on the date of its last audited balance sheet, in the equity of listed foreign companies, which are listed on a recognised stock exchange and having shareholding of at least 10 per cent in Indian companies listed on a recognised stock exchange in India and rated bonds / fixed income securities issued by overseas companies, under the portfolio investment scheme.
In order to provide greater opportunities to listed Indian companies for portfolio investments , the existing limit of 35 per cent has been enhanced to 50 per cent of the net worth of the listed Indian company as on the date of its last audited balance sheet. It has also been decided to do away with the requirement of a reciprocal 10 per cent share holding in Indian companies with immediate effect .
Accordingly, listed Indian companies are now permitted to invest up to 50 per cent of their net worth as on the date of its last audited balance sheet, in (i) shares and, (ii) rated bonds / fixed income securities, rated not below investment grade by accredited/registered credit rating agencies, issued by listed overseas companies. All other terms and conditions stipulated in Regulation 6B of the Notification shall remain unchanged.
3. Overseas Investment by Mutual Funds
Enhancement of the Aggregate Ceiling
The aggregate ceiling for overseas investment by Mutual Funds, registered with SEBI, has been enhanced from USD 4 billion to USD 5 billion with immediate effect. The existing facility to allow a limited number of qualified Indian Mutual Funds to invest cumulatively up to USD 1 billion in overseas Exchange Traded Funds, as may be permitted by the SEBI, shall continue.
Further Avenues for Overseas Investment
Mutual Funds, registered with SEBI are presently permitted to invest in ADRs / GDRs of Indian and foreign companies, rated debt instruments not below investment grade by accredited/registered credit rating agencies, in the equity of overseas companies listed on a recognized stock exchange overseas, in overseas mutual funds that make nominal investments (say to the extent of 10 per cent of net asset value) in unlisted overseas securities, and overseas exchange traded funds that invest in securities. In order to enable the Mutual Funds to tap a larger investible stock overseas, it has been decided to allow Mutual Funds also to invest in additional instruments, subject to the guidelines issued by SEBI.
Accordingly, the Mutual Funds registered with SEBI, are permitted to invest in:
i) ADRs / GDRs issued by Indian or foreign companies;
ii) Equity of overseas companies listed on recognized stock exchanges overseas;
iii) Initial and follow on public offerings for listing at recognized stock exchanges overseas;
iv) Foreign debt securities in the countries with fully convertible currencies, short term as well as long term debt instruments with rating not below investment grade by accredited / registered credit rating agencies;
v) Money market instruments rated not below investment grade;
vi) repos in the form of investment, where the counterparty is rated not below investment grade. The repos should not, however, involve any borrowing of funds by mutual funds;
vii) Government securities where the countries are rated not below investment grade;
viii) Derivatives traded on recognized stock exchanges overseas only for hedging and portfolio balancing with underlying as securities;
ix) Short term deposits with banks overseas where the issuer is rated not below investment grade;
x) Units / securities issued by overseas Mutual Funds or Unit Trusts registered with overseas regulators and investing in (a) aforesaid securities, (b) Real Estate Investment Trusts (REITs) listed in recognized stock exchanges overseas, or (c) unlisted overseas securities (not exceeding 10 per cent of their net assets).
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