Fedai 12thsept

8/11/2019 Fedai 12thsept

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DIRECT INVESTMENT BY RESIDENT

IN JOINT VENTURE ( JV ) / WHOLLYOWNED SUBSIDIARY ( WOS )ABROAD

1. Regulatory guidelines.2. Check list

3. Case studies

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TO BE READ WITH LATEST RBIMASTER CIRCULAR & FEMAGUIDELINES


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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.

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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.

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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.

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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.

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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 )

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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

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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

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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.

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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


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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



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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

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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

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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

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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

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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.,

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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


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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.

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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.

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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



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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



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CASE STUDIES


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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 ?


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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?



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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 ?



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Case Study 4 ODI

Co. A , is a partnership concern interested ininvesting in a JV in Singapore




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Case Study 5 ODI

Co. A , is a Limited company having a BranchOffice in US and interested in converting theBranch into a WOS.




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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 ?



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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.




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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.




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FOREIGN INVESTMENTIN INDIA


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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 ?


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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.




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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 ?



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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.?



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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 ?



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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.




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EXTERNAL COMMERCIALBORROWINGS


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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 ?


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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?


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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 ?


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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 ?


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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.


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THANK YOU