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REAL estate company Unitech can now raise a maximum of Rs 5,000 crore through global depository receipts (GDRs) without waiting for an approval from the foreign investment promotion board (FIPB), following a recent change in the foreign investment policy. The finance ministry has accepted Unitech’s request to withdraw its proposal to raise foreign capital through GDRs and instead allowed it to access the automatic route.

The finance ministry has acceded to the realty company’s contention that Unitech is owned and controlled by resident Indian citizens and its downstream investments in other companies would not be deemed foreign. The company had sought FIPB’s permission to issue GDRs and convert its status from operating to operating-cum-holding company for investing in companies down the line.

“The government has changed the FDI policy and so we have withdrawn our application,” said Unitech MD Sanjay Chandra. Unitech is planning to go in for GDRs since it would allow the company to access investments from even those financial institutions that are not registered in India and hence ineligible to invest in India-listed firms, Mr Chandra said.

Raising funds through GDR or any other route has become increasingly difficult these days given the economic downturn and pessimism in the markets globally. Besides, not many funds are currently bullish on Indian real estate. In this scenario, Unitech is attempting to broaden its potential investor base, in the hope that it might be able to tap some such investors, which might be ineligible to participate in a private placement of equities in an Indian company, but interested in investing.

Unitech is currently in talks with at least three private equity funds to raise funds. Although Unitech has its board’s approval for raising a maximum of Rs 5,000 crore, it may raise only around Rs 1,500 crore through fresh issuance of shares. Unitech’s shares have fallen close to 95% off its peak recorded in January 2008.

Companies now do not need government permission for raising foreign capital to make downstream investments, according to the new rules. The new norms do not require companies to seek government nod for downstream investment if the investing company is majority owned and controlled by a resident Indian.

As per the provisions of the Press Note 2 of 2009 announced last month, if an Indian company owned and controlled by resident Indian citizens makes an investments in another company, the foreign investment in the investing company will not be taken into account for calculating the total foreign investment in the company.

Unitech’s board on December 22 had approved plans to raise Rs 5,000 crore through fresh issuance of securities. Following the board resolution and shareholders’ approval, Unitech had sought permission from FIPB, the nodal body for clearing foreign investments, to raise up to Rs 5,000 crore through GDRs. In its application to FIPB, the realty firm had said that it planned to issue 40 crore GDRs at a price of Rs 36.78, calculated as per the GDR scheme.

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