Chillin' out till it needs to be funded
SATISFYING ISSUES OF WARRANTS, PREFERENCE CAPITAL AND FOREIGN CONTROL
Visitors really appreciated the lack of clear cut guidelines from India’s distributed FDI regime with the EGOM / DIPP / SIA roles and thus when we cam out with the DIPP’s consolidated document fom there, we now consider it worth your while to continue bringing concise value adds in your FDI regime knowledge base.
INDIA’s EXTANT FDI POLICY – Part III | Advantage ‘zyaada’
Little known facts on the convolutedness of the FDI regime never really disabled Foreign Investment into India as the regime was a fractured mandate keeping pace with each day to day concern as India had trodden the extreme path of maintaining control on virtually each FDI sector/geography/industry decision and the resulting media grab or the issues of control and noise from domestic protectionist interests. Still we always stopped short of checking each corporate’s intentions and history and more or less proceeded based on our known/unknown blueprints for each sector’s growth and ended with a different rollout map for each market from insurance, retail and defence to power, steel, investment from diaspora and yet unclear healthcare, education and media/entertainment issues.
Some factors of interest that we have not covered in the presentation of the consolidated policy with ADVANTAGES .Us are tackled in the third part here:
A. Control Issues in ownership: FDI regime now mandates that any organisation owned more than 51% by foreign investors be deemed a foreign corporation. Exceptions will be issued thru RBI in the Banking sector as voting ownership and control issues have been always separately mandated and there is no plan to treat crown jewels ( yet known as Private enterprise) ICICI Bank and HDFC Bank as Foreign corporations for any investment / policy decision unless control map for the same changes
B. Issues from Downstream(Upstream) investment: However, interestingly, and I am much in favour, any downstream investment by such foreign entities by virtue of more than 50% Ownership/Control have to be chalked down as fresh investment proposals. Thus as an interesting blog at peerpower proposes, if an NBFC with $50 million Capital ( min requirement if established with 51% ownership) now sets up another as subsidiary or through rebadging as another holding company, none of the investments are exempted from the minimum capital requirements of $50 million. this is certainly good regulation.
C. Further issues for deemed domestic companies: Also, in the same vein if thru minority ownership you set up an NBFC with $500k capital you will be a domestic company for all further downstream purposes, but care has been taken to clarify that such a company if interested in setting up a majority foreign owned financial subsidiary or otherwise transmitting foreign control will still be reviewed for sectoral FDI controls
D. The last two issues clarified as part of the extant FDI policy are also welcome from a long term investor’s point of view. Though the FDI regime cannot supercede securities regulator SEBI and thus keeps warrant regulation at SEBI denominated 18 month stops for warrants etc, (which has to be taken up separately and thus relevant debate is delayed) issues of perceived control and transactional transparency (in objective) are taken care of. Thus India is taking forward its small victories in the 2008 crisis to enforce stringent regulation against free attached/stripped warrants of unlimited economic value to debt for rebadging predominantly accounting equity transactions as otherwise. Thus Warrants have to be paid up in advance to 25% and expire in a limited time window presumably while accounting lucidity is again redeemed as trustworthy in due course.
E. All convertible debt and otherwise, the infamous cumulative preference shares and its derivates and any other form of capital participation is now part of sectoral controls thus disallowing easy circumvention of equity control limitations by hot money and even established foreign capital to expand local operations. Portfolio FDI is still not included for party’s control ownership but is counted to the sectoral cap. This does increase the habituation of domestic partner’s connivance into the public domain as tax issues are also heightened. Previously daylight cons have already been observed by sleeping local partners in domestic telecom and perceived as honesty in the retail space.
F. Other changes, relate to simplifying definitions of ‘trading’ and ‘cash and carry’ for Wholesale Trade FDI but even more is coming from clearer denomination of obligations and thus further allowance for multi brand retail and single brand retail ( currently allowed till 51%) and whiteppaers clarifying inter ministerial coordination issues and issues of security relating to the Pakistan and China borders and are mandatory much like these above.