Wednesday, February 8, 2012

Procedure for Winding Up or Disinvestmnet of existing holdings in JV/WOS


. Note on Disinvestment of existing holding in JV/ WOS

Procedure:

Disinvestment of holding in a JV/WOS abroad requires prior approval of the Reserve Bank of India for which the parent company will have to submit 

Ø  an application furnishing the reasons /justifications for such disinvestment along with

Ø  a Chartered Accountant’s valuation certificate,

Ø  latest audited financial statements of the JV/WOS,

Ø  Board Resolution approving the disinvestment and

Ø  Chartered Accountant’s certificate regarding position of dues of the WOS and

Ø  total amount to be received by parent company on disinvestment.

Mode of Disinvestment by

A. Transfer by way of sale of shares of a JV / WOS

1. An Indian Party without prior approval of the Reserve Bank may transfer by way of sale to another Indian Party which complies with the provisions of FEMA notified Regulations or to a person resident outside India, any share or security held by it in a JV or WOS outside India subject to the following conditions:

            i.         the sale does not result in any write off of the investment made.

          ii.          the sale is effected through a stock exchange where the shares of the overseas JV/ WOS are listed;

         iii.          if the shares are not listed on the stock exchange and the shares are disinvested by a private     arrangement, the share price is not less than the value certified by a Chartered Accountant / Certified Public Accountant as the fair value of the shares based on the latest audited financial statements of the JV / WOS;

        iv.         the Indian party does not have any outstanding dues by way of dividend, technical know-how fees, royalty, consultancy, commission or other entitlements and / or export proceeds from the JV or WOS;

          v.          the overseas concern has been in operation for at least one full year and the Annual Performance Report together with the audited accounts for that year has been submitted to the Reserve Bank;

        vi.          the Indian party is not under investigation by CBI / DoE/ SEBI / IRDA or any other regulatory authority in India.

       vii.         The Indian entity is required to submit details of such disinvestment through its designated AD category-I bank within 30 days from the date of disinvestment.

B.Transfer by way of sale of shares of a JV / WOS involving Write off of the investment

(1) Indian Parties may disinvest, without prior approval of the Reserve Bank, in any of the under noted cases where the amount repatriated after disinvestment is less than the original amount invested:

         i.            in case where the JV / WOS is listed in the overseas stock exchange;

       ii.            in cases where the Indian Party is listed on a stock exchange in India and has a net worth of not less than Rs.100 crore;

      iii.            where the Indian Party is an unlisted company and the investment in the overseas venture does not exceed USD 10 million. and

     iv.            where the Indian Party is a listed company with net worth of less than Rs.100 crore but investment in an overseas JV/WOS does not exceed USD 10 million.

(2) Such disinvestments shall be subject to the conditions listed at A items (ii) to (vi) and A.2.above.

(3) An Indian Party, which does not satisfy the conditions laid down above for undertaking any disinvestment in its JV/WOS abroad, shall have to apply to the Reserve Bank for prior permission.

C. Restructuring of the balance sheet of the overseas entity involving write- off of capital and receivables

In order to provide more operational flexibility to the Indian corporates, the Indian promoters who have set up WOS abroad or have at least 51 per cent stake in an overseas JV, may write off capital (equity / preference shares) or other receivables, such as, loans, royalty, technical knowhow fees and management fees in respect of the JV /WOS, even while such JV /WOS continues to function as under:

(i)         Listed Indian companies are permitted to write off capital and other receivables up to 25 per cent of the equity investment in the JV /WOS under the Automatic Route; and

(ii)     Unlisted companies are permitted to write off capital and other receivables up to 25 per cent of the equity investment in the JV /WOS under the Approval Route.

Obligation by Indian Party in case

I.Transfer by way of sale of shares of a JV / WOS involving Write off of the investment &

Restructuring of the balance sheet of the overseas entity involving write- off of capital and receivables

The write-off / restructuring have to be reported to the Reserve Bank through the designated AD Category-I bank within 30 days of write-off/ restructuring. The write-off / restructuring is subject to the condition that the Indian Party should submit the following documents for scrutiny along with the applications to the designated AD Category –I bank under the Automatic as well as the Approval Routes:

a) A certified copy of the balance sheet showing the loss in the overseas WOS/JV set up by the Indian Party &

b) Projections for the next five years indicating benefit accruing to the Indian company consequent to such write off / restructuring.

II.Transfer by way of sale of shares of a JV / WOS outside India

The Indian party should report details of the disinvestment through the AD Category – I bank within 30 days of disinvestment in Part IV of the Form ODI. In case of disinvestment, sale proceeds of shares/securities shall be repatriated to India immediately on receipt thereof and in any case not later than 90 days from the date of sale of the shares /securities and documentary evidence to this effect shall be submitted to the Reserve Bank through the designated Authorised Dealer


If you need further info or clarification on the subject, please revert to me at rvsekar2007@gmail.com

Regards

R.V.Seckar


1 comment:

  1. Can you share the link of the RBI circular which talks about the prior approval of the RBI? Thank you

    ReplyDelete