Overseas Direct Investment- Rationalisation
RBI/2006-2007/337
A. P. (DIR Series) Circular No. 41
April 20, 2007
To,
All Category - I Authorised Dealer Banks
Madam / Sir,
Overseas Direct Investment- Rationalisation
Attention of Authorised Dealer Category - I (AD Category - I) banks is invited
to Notification No.FEMA120/RB-2004 dated July 7, 2004, [Foreign Exchange
Management (Transfer or Issue of Any Foreign Security) Regulations, 2004 as
amended from time to time (the Notification). In order to rationalise the
existing provisions, the following changes have been effected in the Regulations
governing overseas investments.
- Investment in a foreign security by swap or exchange of shares of an Indian
company
In terms of Regulation 8 of the Notification ibid, an Indian party is permitted
to acquire shares of a foreign company, engaged in a bonafide business activity,
in exchange of ADRs / GDRs issued to the latter in accordance with the scheme
for issue of Foreign Currency Convertible Bonds and Ordinary Shares (through
Depository Receipt Mechanism) Scheme, 1993, and the guidelines issued there
under from time to time by the Central Government. This is further subject to
certain conditions, valuation norms and reporting to the Reserve Bank. Such
acquisitions shall, henceforth, be considered as an accepted mode of overseas
direct investment and shall be subsumed under the limit specified in Regulation
6 of the Notification ibid.
- Pledge of shares of the overseas JV / WOS to an overseas lender
In terms of Regulation 18 of the Notification ibid, an Indian party is permitted
to transfer by way of pledge, shares held in a JV / WOS outside India, as a
security for availing of fund based or non-fund based facilities for itself or
for the JV / WOS, to an AD Category – I bank in India.
In order to provide operational flexibility to Indian parties for availing fund
based and non-fund based facilities overseas, Indian parties are now permitted
to transfer by way of pledge, the shares held in overseas JV / WOS, to an
overseas lender, provided the lender is regulated and supervised as a bank and
the total financial commitments of the Indian party remain within the limit
stipulated by Reserve Bank for overseas investments.
- AD Category – I banks may bring the contents of this circular to the notice
of their constituents and customers concerned.
- Necessary amendments to Notification No.FEMA120/RB-2004 dated July 7, 2004,
[Foreign Exchange Management (Transfer or Issue of Any Foreign Security)] are
being notified separately.
- The directions contained in this circular have been issued under sections
10(4) and 11(1) of the Foreign Exchange Management Act 1999 (42 of 1999) and is
without prejudice to permissions / approvals, if any, required under any other
law.
Yours faithfully,
(Salim Gangadharan)
Chief General Manager