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India liberalises overseas acquisition norms

The government today liberalised norms for overseas business acquisitions for information technology, pharmaceuticals, and other knowledge-based industries to acquire business up to $ 100 million abroad through stock swaps.

The liberalisation has been done for acquisitions under American depository receipts or ADRs and global depository receipts or GDRs. The other areas, which fall under the purview, were biotechnology and entertainment software industries.

The government also increased the ceiling for overseas investment under automatic route to $ 50 million for Indian companies from $ 15 million. However, the committee on overseas investment will consider investments beyond this limit.

The announcements come in the wake of India's finance minister Yashwant Sinha stating in his budget speech that the norms will be liberalised soon.

The government also liberalised proposals for direct investment in a joint venture of a wholly owned subsidy abroad by a private or a public limited company. This would be subject to compliance with the eligibility requirement of profit earnings during the previous three years and the proposals related to company's core activity would be entitled to automatic route without prior reference to the Reserve Bank of India or RBI.

The investments ceilings for acquisitions in South Asian Association Regional Co-operation or SAARC countries has also been revised upwards and the government would be notifying the ceiling separately.

The funding for investments would be from the balances of ECFC accounts of investing companies, 50 per cent of ADR/GDR realisation, domestic resources including loans, equity and other contingent liabilities like guarantees which should not exceed 25 per cent of net worth of investing company.

The existing limit of $ 15 million under fast track route of investments out of ECFC balances permitted by authorised dealers without reference to eligibility conditions for overseas investments and without reference to the RBI will be enhanced to $ 50 million.

The other is the funding of overseas investments through ADR/GDR realisations up to a maximum of 50 per cent of such realisation without any value limits and without reference to eligibility conditions.

The special committee on overseas investment under the RBI would consider proposals governed by these parameters, and those involving overseas investment value beyond the limit prescribed for automatic route.

The government also prescribed that the overseas investment proposals in any of the categories should not be predominantly real estate oriented.

Detailed guidelines laying the norms for Indian direct investment in joint ventures and wholly owned subsidiaries abroad would be notified separately.

The IT and other knowledge-based industries would be able to acquire business abroad through stock swap subject to December 27 guidelines.

UNI

Business