Easy norms for foreign equity buying

The Reserve Bank of India (RBI), on Wednesday, allowed Indian residents to acquire shares of a foreign entity by way of qualification shares, professional services rendered and ESOP scheme. “Since the necessity of having certain qualification shares by an individual to be appointed as a director of the company is governed by the law of the host country, it has been decided to remove the existing cap of one per cent on the ceiling for resident individuals to acquire qualification shares for holding the post of a director in the overseas company,” RBI said in a notification. Further, it has been decided to grant general permission to the resident individuals to acquire shares of a foreign entity in part or full consideration of professional services rendered to the foreign company or in lieu of director's remuneration. The RBI has also allowed resident employees or directors to accept shares offered under an ESOP scheme globally, on uniform basis, in a foreign company irrespective of the percentage of direct or indirect equity stake in the Indian company. It has been decided that the proposals from the Indian party for creating charge in the form of pledge / mortgage / hypothecation on the immovable / movable property and other financial assets of the Indian party and their group companies may be considered by the RBI under the approval route within the overall limit fixed (now 400 per cent) for financial commitment. It has also been decided that the bank guarantee issued by a resident bank on behalf of an overseas joint venture (JV)/ wholly-owned subsidiary (WOS) of the Indian party would be reckoned for computation of financial commitment of the Indian party and reported accordingly. The issuance of personal guarantee by the promoters of the Indian party, as presently allowed under the general permission, would also be extended to the indirect resident individual promoters of the Indian party with same stipulations. Keeping in view the business requirement of the Indian party, particularly the legal requirement of the host country, it has now been decided that the proposals from the Indian party for undertaking financial commitment without equity contribution in JV/WOS may be considered by the RBI under the approval route. Where the law of the host country does not mandatorily require auditing of the books of accounts of JV/WOS, the annual performance report (APR) may be submitted by the Indian party based on the unaudited annual accounts of the JV/WOS provided the statutory auditors of the Indian party certify that ‘the unaudited annual accounts of the JV/WOS reflect the true and fair picture of the affairs of the JV/WOS'; and that the unaudited annual accounts of the JV/WOS have been adopted and ratified by the board of the Indian party. Keeping in view the nature of the compulsorily convertible preference shares (CCPS), it has been decided that CCPS shall be treated on a par with equity shares (instead of loan) and the Indian party is allowed to undertake financial commitment based on the exposure to JV by way of CCPS. Keywords: foreign equity buying, easy norms, Reserve Bank of India