Overseas investment and bringing in foreign funding

By Gautam Khurana, India Law Offices
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Aspiring Indian investors and investee companies can use the following rules of thumb in various overseas investment scenarios as well as for bringing in private equity investments and external commercial borrowings (ECBs).

Gautam Khurana
Gautam Khurana

Setting up new companies or wholly owned subsidiaries (WOS) – (1) Understand and comply with the incorporation procedures of the country where the investment is planned. (2) Make the investment within a band of 400% net worth, which is certifiable as per Indian tax laws. (3) Understand the local residency requirements for directorships as well as immigration to get your management team in the target market. (4) Investments can be funded through buying foreign exchange from the Reserve Bank of India (RBI), drawing from export earnings, raising American depository receipts (ADRs) or global depositary receipts (GDRs), raising overseas debt, via ECBs, foreign currency convertible bonds (FCCBs), exchange earners’ foreign currency, etc. (5) Reporting the entire investment and new business to the RBI would start with generation of a unique identification number followed by submitting details of investments and an annual performance report to the authorized dealer. (6) If and when the business is closed it is obligatory and mandatory for the Indian company to report the closing of the venture.

Joint ventures (JVs) – (1) All the steps required in case of a new company or WOS need to be followed for a JV. (2) Where the JV contribution would be through a share swap, valuations would be through a category I merchant banker registered with the Securities and Exchange Board of India (SEBI), along with approval by the Foreign Investment Promotion Board. (3) The Indian company can also acquire shares in a JV in exchange for ADRs or GDRs issued under the FCCB guidelines. (4) Royalties, know-how, etc., can also be used as contribution for an overseas JV.

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Gautam Khurana is the managing partner at India Law Offices in New Delhi.

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D – 19 (GF) & D – 31, South Extension – 1

New Delhi – 110 049

Tel: +91 11 2462 2216, 2462218

Fax : +91 11 2465 4364

Email: g.khurana@indialawoffices.com

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