[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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