[Press Note 2009]FDI, Downstream Invesment, clarification & types of companies

Downstream investment refers to either fresh investment or acquisition by foreign-owned Indian holding company in a project of different activity which may or may not belong to the same group.

Click here for Press Note 2 of 2009 series regarding "Guidelines for calculation of total foreign investment i.e. direct and indirect foreign investment, including downstream investment in any or all Indian companies". 'Downstream investment' means indirect foreign investment by one Indian company into another Indian company by way of subscription or acquisition in terms of Press Note 2 of 2009. Para 5.2 of the said Press Note provides the guidelines for calculation of indirect foreign investment with conditions specified in para 5.5. It has definition of terms "when an Indian Company is owned and controlled by resident Indian citizens" OR "when an Indian company is owned or controlled by non-resident entities" OR "foreign investment". Download Press Note 2 from http://siadipp.nic.in/policy/changes/pn2_2009.pdf

Click here for Press Note 3 of 2009 series regarding "Guidelines for transfer of ownership or control of Indian companies in sectors with caps from resident Indian citizens to non-resident entities" with definition of terms "owned by resident Indian citizens & Indian companies" OR "controlled by resident Indian citizens or Indian companies" OR "owned by non-resident entities" OR "controlled by non-resident entities". It is clarified that these guidelines will not apply for sectors/activities where there are no foreign investment caps, that is, 100% foreign investment is permitted under the automatic route. Download Press Note 2 from http://siadipp.nic.in/policy/changes/pn3_2009.pdf

Click here for Press Note 4 of 2009 series regarding "Clarificatory guidelines on downstream investment by Indian Companies". The 'guiding principle' is that downstream investment by companies 'owned' or 'controlled' by non resident entities would require to follow the same norms as a direct foreign investment i.e. only as much can be done by way of indirect foreign investment through downstream investment in terms of Press Note 2 (2009 series) as can be done through direct foreign investment and what can be done directly can be done indirectly under same norms. It has definitions of "operating company" OR "investing company". It can be downloaded from http://siadipp.nic.in/policy/changes/pn4_2009.pdf

The classification for the purpose of Foreign Direct Investment (FDI) include:
Only Operating Companies - to comply with respective sectoral conditions & caps for foreign investment.
Operating-cum-investing companies - to comply with respective sectoral conditions & caps for foreign investment and the subject Indian companies into which downstream investments are made by such companies should also comply with its respective sectoral conditions & caps.
Investing companies - require prior approval of Government or FIPB for foreign investment and the subject Indian companies into which downstream investments are made by such companies should also comply with its respective sectoral conditions & caps.
Companies with no operations or downstream investments - require approval of Government or FIPB for foreign investment and when such company commences business or makes downstream investment it will have to comply with its respective sectoral conditions & caps.

Downstream investment by OTHER THAN 'only operating companies' is subject to following conditions:

1. To notify SIA, DIPP and FIPB of its downstream investment within 30 days of such investment even if equity shares/CCPS/CCD have not been allotted;
2. If by way of induction of foreign equity in an existing Indian Company to be duly supported by a resolution of the Board of Directors supporting the said induction as also a shareholders Agreement if any;
3. Issue/transfer/pricing/valuation of shares shall be in accordance with applicable SEBI/RBI guidelines;
4. Investing companies would have to bring in requisite funds from abroad and not leverage funds (not raising debts) from domestic market for such investments.

Thats it about Press Notes 2, 3 & 4 of 2009. TO keep track of Press Notes, click http://yehseeyes.blogspot.com/search/label/Industries%20DIPP

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Changes in FDI Policy - DIPP Press Notes Series 2008

Dear All,

Department of Industrial Policy & Promotion has issued 6 Press Notes under 2008 series on 12^th March 2008. Brief amendments in FDI policy in said press notes are as follows:

Press Note 1 (2008): Change in FID on Credit Information Company (CIC):

As per PN-1 of 2008, Foreign Investment is permitted to the extent of 49% through composite ceiling i.e both Foreign Direct Investment and as well Investment by FII through portfolio investment, subject to the approval from FIPB and necessary regulatory clearance from RBI and subject to the following conditions.

• Portfolio investment by FII should not exceed 24% at any case.
• Further no such FII should hold more than 10% either directly or indirectly.
• Any acquisition in excess of 1% is subject to the reporting to the RBI.
• FII's who are going to invest in CICs Companies, should not seek any representation in the Board based on their shareholding.

Press Note 2 (2008): Foreign Investment on Commodities Exchange:

As per PN-2 of 2008, Foreign Investment is permitted to the extent of 49% through composite ceiling i.e both Foreign Direct Investment and as well Investment by FII through portfolio investment, subject to the specific approval of the Government and necessary regulatory clearance from RBI and subject to the following conditions.

• FII can invest only through secondary market i.e Portfolio investment route only to the extent of 23% at any case.
• Investment under FDI scheme will be allowed to the extent of 26%.
• No foreign investor, including person acting in concert with can hold more than 5% either directly or indirectly.

Press Note 3 (2008): Clarification on FID in Industrial Park:

You may be aware of that as per press note 2 of 2000, 100% FDI is allowed for industrial park under the automatic route. Further through press note 2 of 2005, the Govt of India stipulated certain conditions for FDI upto 100% under the automatic route for development industrial projects subject to the terms and conditions as stipulated PN 2 of 2005. But, Companies which are in established industrial park are falling under 100% automatic route without complying with PN 2 of 2005.

Further through this PN 3 of 2008, it is clarified FDI will be permitted under the automatic route without complying with PN 2 of 2005 both for setting up industrial park and as well established industrial park.

Besides, DIPP has also issued press notes on the following subject, Press Note 4 (2008): Change in FDI Policy in Civil Aviation Sector, Press Note 5 (2008): Change in FDI Policy in petroleum and Natural Gas Sector, Press Note 6(2008: FDI Policy for mining of titanium bearing mineral and ores.

You can access entire text of press notes 2008 series at http://groups.google.com/group/cschennai/files in PDF format.

Thanks & Regards

Alagar

Investment Banking

Karvy Investor Services Limited
G-1 Swathi Court
22, Vijayaraghava Road
T.Nagar, Chennai - 600 017
Tel: 044-28151034/3445/3658
Moble: 919884731993
e-mail: alagar.muthu@karvy.com
website: karvy.com

for more information about cschennai visit to
http://groups.google.com/group/cschennai

Download all Press Notes from 1991 to 2009 issued by DIPP as it proposes to consolidate PNs in 2010 to release a comprehensive FDI policy in India like Master Circulars with a sunset clause of 6 months

Draft Master Press Note with FDI Regulatory Framework

The Legal basis: Foreign Direct Investments (FDI) by non-resident (NRI) in resident entities through transfer or issue of security to person resident outside India (PROI) is a ‘Capital account transaction’ and Government of India and Reserve bank of India (RBI) regulate this under the FEMA 1999 and its various regulations. Keeping in view the current requirements, the Government comes up from time to time with new regulation, amends/changes in existing one through order/allied rules, Press Notes, etc. . The regulatory framework over a period of time thus consists of Acts, Regulations, Press Notes, Press Releases, Clarifications, etc.

This draft Press Note consolidates into one document all the prior regulations on FDI and reflects the current ‘regulatory framework’ on FDI. It is clarified that this is a consolidation/compilation and comprehensive listing of most matters on FDI and is not intended to make changes in the extant regulations. While attempt has been made to deal with the subject comprehensively, if some aspect(s) has been left out then that will continue to be dealt in the current way where it is listed.

It is the intent and objective of the Government to have a regulatory framework which is transparent, predictable, understandable, simple and clear to reduce the regulatory burden and promote foreign direct investment. The new system of continuous consolidation and updation is primarily evinced as a measure of investor and investment friendliness.

This Press Note will have a sunset clause of 6 months and will automatically lapse on 30th September, 2010. A new press Note on Regulatory Framework would be issued every six months which will incorporate and reflect all the changes in the regulations during the last intervening period of 6 months. Thus the Government will issue Press Note on FDI Regulatory Framework twice a year in April and October which would be the current regulatory framework on that date.

All earlier Press Notes on FDI issued by Department of Industrial Policy and Promotion (DIPP), Government of India stand rescinded.

Notwithstanding the rescindment of earlier Press Notes, anything done or any action taken or purported to have been done or taken under the resinded Press Notes shall in so far as it is not inconsistent with this Press Note be deemed to have been done or taken under the corresponding provisions of this Press Note.

Download all Press Notes issued by DIPP from 1991 to 2009 here

FDI Update- Credit Info Co, Commodity Exchange, Foreign Currency Bids of Indian Projects, SEBI SARFAESI QIB notification

Foreign investment in Credit Information Companies:

1. To comply with the Credit Information Companies (Regulations) Act 2005 and

2. subject to the following :
i) The aggregate Foreign Investment in Credit Information Companies would be 49%.

ii) Foreign Investment upto 49% would be allowed only with the prior approval of FIPB and regulatory clearance from RBI.

iii) Investment by SEBI Registered FIIs would be permitted only through purchases in the secondary market to an extent of 24%.

iv) Investment by SEBI Registered FIIs would be within the overall limit of 49% for Foreign Investment.

v) No FII can individually hold directly or indirectly more than 10% of the equity.

A copy of the Press Note 1 (2008 series) dated March 12, 2008 issued by the Government is enclosed.

Click here for Notification http://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=4150&Mode=0

Foreign investment in Commodity Exchanges:

subject to the following conditions : i) There would be a composite ceiling of 49% Foreign Investment, with a FDI limit of 26% and an FII limit of 23%.
ii) FDI will be allowed with specific approval of the Government.
iii) The FII purchases in equity of Commodity Exchanges will be restricted only to the secondary markets.
iv) Foreign Investment in Commodity Exchanges would also be subject to compliance with the regulations issued, in this regard, by the Forward Market Commission.
A copy of Press Note 2 (2008 series) dated March 12, 2008 issued in this regard is enclosed.

Link to the notification http://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=4151&Mode=0

It has been brought to the notice of the Government that some of the existing Commodity Exchanges had foreign investment above the permitted level as on the date of issue of the said Press Note. In order to facilitate the existing Commodity Exchanges to comply with the guidelines notified vide Press Note 2(2008), vide press note 8 of 2008 series dated 19th August 2008 it has now been decided to allow a transition / complying/correction time to the existing Commodity exchange(s). The Commodity Exchange(s) would be required to divest foreign equity equal to the amount by which the cap was being exceeded in accordance with Press Note 2(2008). Accordingly, all such Commodity Exchanges are hereby advised to adhere to the conditions of Press Note 2(2008) by 30.6.2009. All Commodity Exchanges shall furnish a compliance report informing the foreign investment in the Commodity Exchange as on 30.6.2009, along with details of equity structure, to the Department of Industrial Policy & Promotion, Department of Consumer Affairs, Foreign Investment Promotion Board, the Forward Market Commission and SEBI.

Non-compliance of the conditions of Press Note 2(2008) after 30.6.2009 would be a violation of the Foreign Exchange Management Act, 1999

Bids in foreign currency for projects to be executed in India:
1. Person resident in India has been permitted to incur liability in foreign exchange and to make or receive payments in foreign exchange in respect of global bids where the Central Government has authorized such projects to be executed in India and the approval of the concerned Administrative Ministry has been obtained. In such cases, authorized dealers are permitted to sell foreign exchange to the resident Indian company which has been awarded the contract.
2. Persons resident in India are now permitted to incur liability in foreign exchange and to make or receive payments in foreign exchange in respect of global bids for projects to be executed in India without insisting on prior approval of the concerned Administrative Ministry for the International Competitive Bidding.

Link to Notification http://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=4149&Mode=0

SEBI Notification under Section 2(1) (u) of SARFAESI Act, 2002:

certain non-deposit NBFC = QIB u/SARFAESI

Non-banking financial companies (NBFC) registered under section 45-IA of the Reserve Bank of India (RBI) Act, 1934 and satisfying the following conditions shall be qualified institutional buyers (QIB) for the purposes of the SARFAESI Act,

Conditions:

1. systemically important non-deposit taking non-banking financial companies (NBFCs) with asset size of one hundred crore rupees and above (>=100 Crores); and
2. other non-deposit taking NBFCs which have asset size of fifty crore rupees and above (>=50 Crores) and “Capital to Risk – weighted Assets Ratio” (CRAR) of 10% as applicable to non-deposit taking NBFCs as per the last audited balance sheet.

Notification in http://thisisvj.googlepages.com/SEBI-QIBNotification-31Mar08.pdf

Consolidated Updates flash

FEMA Master Circulars http://thisisvj.googlepages.com/MasterCircularRFO.pdf & http://thisisvj.googlepages.com/MasterCiruclar-remittancefacilitiest.pdf

UPDATES FROM Dr.KSR's DESK

Date: 11/03/2008	MCA	RBI	SEBI	Dept. of Commerce (DoC)	Dept. of Industrial Policy & Promotion (DIPP)
Circulars	Nil	---	SEBI/CFD/DIL/MB/IS/1/2008/11/03 Instructions to Registered Merchant Bankers on PAN card along with Public Issue applications	---	Nil
Notifications	Nil	Nil	---	Nil	Nil
Guidelines	Nil	Nil	Nil	---	---
Reports	---	---	Nil	Nil	---
Rules	Nil	---	Nil	Nil	Nil
Regulations	Nil	Nil	Nil	Nil	Nil
Master Circulars	---	Nil	---	Nil	Nil
Concept Papers / Papers for Discussion / Public Comments	Nil	---	Nil	Nil	Nil
Press Release	Nil	Nil	PR No.88/2008 SEBI instructs Merchant Bankers not to demand for photocopy of PAN card along with Public Issue applications	Nil	Nil

Date: 12/03/2008	MCA	RBI	SEBI	Dept. of Commerce (DoC)	Dept. of Industrial Policy & Promotion (DIPP)
Circulars	Nil	---		---	Nil
Notifications	Nil	Nil	---	Nil	Nil
Guidelines	Nil	Nil	Nil	---	---
Reports	---	---	Nil	Nil	---
Rules	Nil	---	Nil	Nil	Nil
Regulations	Nil	Nil	Nil	Nil	Nil
Master Circulars	---	Nil	---	Nil	Nil
Concept Papers / Papers for Discussion / Public Comments	Nil	---	Nil	Nil	Nil
Press Release / Press Note	Nil	Press Release: 2007-2008/1186 Respect Your Banknotes: RBI appeals to Public	Nil	Nil	Press Note No.1 (2008) Guidelines for foreign investment in Credit Information Companies Press Note No.2 (2008) Guidelines for foreign investment in Commodity Exchanges Press Note No.3 (2008) Guidelines for Foreign Direct Investment in Industrial Parks Press Note No.4 (2008) FDI Policy for the Civil Aviation Sector Press Note No.5 (2008) Rationalisation of FDI Policy for the Petroleum & Natural Gas sector Press Note No.6 (2008) FDI Policy for mining of Titanium bearing minerals and ores

Date: 10/03/2008	MCA	RBI	SEBI	Dept. of Commerce (DoC)	Dept. of Industrial Policy & Promotion (DIPP)
Circulars	Nil	---	Nil	---	Nil
Notifications	Nil	RBI/2007-2008/260 DPSS No.1405 / 02.10.02 / 2007-2008 Customer charges for use of ATMs for cash withdrawal and balance enquiry RBI/2007-2008/261 DPSS No. 1407 / 02.10.02 / 2007-2008 Use of electronic mode of payment for large value transactions	---	Nil	Nil
Guidelines	Nil	Nil	Nil	---	---
Reports	---	---	Nil	Nil	---
Rules	Nil	---	Nil	Nil	Nil
Regulations	Nil	Nil	Nil	Nil	Nil
Master Circulars	---	Nil	---	Nil	Nil
Concept Papers / Papers for Discussion / Public Comments	Nil	---	Nil	Nil	Nil
Press Release	Nil	Nil	Nil	Prohibition on Export of Basmati & Non-Basmati Rice – PR Dated 07/03/2008	Nil