PROCEDURE FOR INVESTING IN WOS IN ABROAD

INITIAL COMPLIANCE'S -

1. Board Resolution under Section 292(1) (d) & S.372A for investment and incorporation of Wholly Owned Subsidiary.
   
   
2. Form ODI – Part I (i. e. details of JV/ WOS, Indian Parties and the financing pattern of the overseas entity) is required to be filed by Investing Indian Company with Designated Authorised Dealer Bank. Certificate by the Statutory Auditor for compliance of FEMA is also required to be submitted along with ODI form.
   
   
3. Under Automatic Route, in case of new proposals, immediately after effecting remittance, the Designated Authorised Dealer Bank will forward Form ODI – Part I along with Part II (i. e. Remittance Report) to RBI for obtaining Unique Identification Number.
   
   
4. On receipt of the Form from the AD bank, RBI will allot an Unique Identification Number to each JV/ WOS, which is required to be quoted in all the future correspondence by AD Bank/ Indian Company.

How Much Quantum can be Invested:

Under automatic route , up to 100% net worth of investing company in its foreign subsidiary or JV Company.

If your Indian Company net worth is say Rs 1 Crore , you can invest up to 1 Crore under automatic route in the WOS / JV company in foreign country.

How Much can be invested in WOS / JV by an Indian Listed Company  ?

As per RBI guidelines , if  there is no JV or WOS , Listed Indian companies can invest up to 50 % of their net worth as on the date of the last audited Balance Sheet in overseas companies, listed on a recognized stock exchange, or by way of rated debt securities issued by such companies by way of portfolio investment.

Prohibitions

Indian parties are prohibited from making investment in a foreign entity engaged in real estate (meaning buying and selling of real estate or trading in Transferable Development Rights (TDRs) but does not include development of townships, construction of residential/commercial premises, roads or bridges) or banking business, without the prior approval of the Reserve Bank.

POST INVESTMENT COMPLIANCE'S -

1. An Indian Company which has made direct investment abroad is under obligation to receive share certificate or any other document as an evidence of investment, and submit the documents / Annual Performance Report to the Reserve Bank, in accordance with the provisions specified in Regulation 15 of the Notification. The share certificate or any other document as evidence of investment has to be submitted to and retained by the designated AD Category - I bank, who is required to monitor the receipt of such documents and satisfy themselves about the bonafides of the documents. A certificate to this effect should be submitted by the designated AD category – I bank to the Reserve Bank along with the APR (Part III of Form ODI). 
   
   
2. Annual Performance Report (APR) should be submitted, through the designated AD Category-I bank, every year within 3 months of the closing of the annual accounts of the WOS i. e. on or before 30.06.2010
   
   
3. A JV / WOS set up by the Indian party as per the Regulations may diversify its activities / set up step down subsidiary / alter the shareholding pattern in the overseas entity . The Indian Company should report to the Reserve Bank through the AD Category - I bank, the details of such decisions within 30 days of the approval of those decisions by the competent authority of the JV / WOS concerned in terms of local laws of the host country and include the same in the Annual Performance Report (APR—Part III of form ODI) required to be forwarded to the AD Category-I bank.
   
   

   R.V.Seckar

    

   rvsekar2007@gmail.com

   
   

   919848915177

Can ECB raised for repayment of Term Loan or Working Capital ?

There are end use restrictions and as of now , ECB cannot be availed for working capital purpose.

ECBs are being permitted by the Government as a source of finance for Indian Corporates for expansion of existing capacity as well as for fresh investment.

END-USE REQUIREMENTS

.(A) External commercial loans are to be utilized for import of capital goods and services (on FOB or CIF basis) and for the project related expenditure in all sectors subject to following conditions :

(a) ECB raised for project-related rupee expenditure must be brought into the country immediately.

(b) ECB raised for import of capital goods and services should be utilized at the earliest and corporates should strictly comply with RBI's extant guidelines on parking ECBs outside till actual imports. RBI would be monitoring ECB proceeds parked outside.

(c) ECB raised is not permitted for investment in stock market or in real estate.

(B) Corporate borrowers will be permitted to raise ECB to acquire ships/vessels from Indian shipyards. (C) Under no circumstances, ECB proceeds will be utilized for -
( i) Investment in stock market; and
(ii) Speculation in real estate.

ECBs only for import of capital goods and project-related rupee expenditure. Such Recycled Funds may not be on lent for the following purposes :

(i) Investment in Real Estate;
(ii) Investment in Stock markets including secondary market trading;
(iii) Working capital purposes;
(iv) General corporate purposes

Corporate’s who have foreign exchange earnings are permitted to raise ECB up to thrice the average amount of annual exports during the previous three years subject to a maximum of USD 200 million without end-use restrictions, i.e. for general corporate objectives excluding investments in stock markets or in real estate.

If you have adequate foreign exchange earnings and you can raise ECB thrice of your annual export earnings without any end use restriction. That is you can use the ECB in such cases to repay your working capital or term loan availed from the bank.

In other scenarios , ECB is not permitted to repay working capital or term loans in India.