The government has modified the existing foreign direct investment (FDI) policy, which now allows unlisted companies to raise capital abroad without the requirement of prior or subsequent listing in India initially for a period of two years.
Prior to this, unlisted companies, which have not yet accessed the ADR/GDR (American Depository Receipts/Global Depository Receipts) route for raising capital in the international market, would require prior or simultaneous listing in the domestic market, while seeking to issue such overseas instruments. In addition, unlisted companies, which have already issued ADRs/GDRs in the international market, have to list in the domestic market on making profit or within three years of such issue of ADRs/GDRs, whichever is earlier.
According to a notification from the Department of Industrial Policy & Promotion (DIPP), the modification of the FDI policy is subject to the following conditions:
Unlisted companies shall list abroad only on exchanges in IOSCO/FATF compliant jurisdictions or those jurisdictions with which SEBI has signed bilateral agreements.
The companies shall file a copy of the return which they submit to the proposed exchange/regulators also to SEBI for the purpose of Prevention of Money Laundering Act (PMLA). They shall comply with SEBI's disclosure requirements in addition to that of the primary exchange prior to the listing abroad.
While raising resources abroad, the listing company shall be fully compliant with the FDI policy in force.
The capital raised abroad may be used for retiring outstanding overseas debt or for operations abroad, including for acquisitions.
In case the funds raised are not used abroad as stipulated, such companies shall remit the money back to India within 15 days and such money shall be parked only in AD category banks recognised by RBI and may be used domestically.
The listing company would also have to comply with the instructions on downstream investment and the criteria of eligibility of who can raise funds through ADRs/GDRs would be as prescribed by the government. This move is an attempt to contain the high current account deficit (CAD), which the government aims to bring down to below $56 billion this financial year, against $88.2 billion in FY13.
RBI has already released a statement in this regard. The scheme will be implemented on a pilot basis for two years.
(Edited by Joby Puthuparampil Johnson)