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INDIA BUSINESS WORLD - NOVEMBER 1st – NOVEMBER 15th 2008
FIPB NOD FOR 30 FDI-BOOSTING PROPOSALS
As many as 30 proposals involving foreign investment of over Rs 6,000 crore through holding companies have been cleared by the Foreign Investment Promotion Board (FIPB) in the past couple of months. The proposals involve conversion of an operating company into an operating cum-holding company (OHC) to facilitate downstream investments.
The move is significant since it could boost FDI inflows at a time FII money worth $12 billion has left the bourses. The clearance of such proposals increased at least 50% this year compared to last year.
The board is also providing clearances to companies that have made downstream investments without prior permission. Clearance with retrospective effect is being provided in such cases subject to compounding by RBI. Some holding company proposals approved by FIPB in the last two months cover projects such as Essar Global-Asia Motorworks, Adani Power, Mauritiusbased private equity major TPG Holdings, Suzlon Energy and Krishnapatnam Ports.
FIPB cleared Asia Motorworks proposal for induction of foreign capital worth Rs 590 crore from Essar Global through formation of a holding-cum-operating company. The Indian company would now issue convertible debentures and preference shares to Essar Global worth Rs 590 crore.
Similar approvals were given to TPG to make downstream investments worth Rs 800 crore through a holding company for carrying out investment operations in India. The board also approved Suzlon proposal to set up a holding company to make downstream investment in wind turbine energy systems.
With FIIs pulling out, officials feel FDI is the only route for boosting capital flows. Hence, approvals are being put on fast track.
To expedite clearance of FDI proposals, the board is also rejecting objections of treaty shopping raised by the revenue department. Overruling objections from the department of revenue, the Essar Group's Cayman Island-based holding firm Essar Global received FIPB approval for its proposed investment in truck-making company, Asia Motorworks.
In many other cases, the board has given clearances with the observation that the department could continue with investigations.
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