The document discusses various methods for funding investments in joint ventures (JVs) and wholly owned subsidiaries (WOS) abroad by Indian companies. It outlines that investments can be funded through foreign exchange reserves, export proceeds, equity swaps, external commercial borrowings, depository receipts, and balances in exchange earners' foreign currency accounts. The capitalization of export proceeds and other dues to invest in overseas JVs/WOS within prescribed timelines is also permitted. Indian companies can invest in overseas equities and rated debt instruments up to a certain percentage of their net worth. The acquisition of a foreign company through a bidding process is also discussed.

1. Funding of Investments in JV/WOS
Abroad
CA T.K. Sundara Rajan

2. Research Credits
Gracelin Lita

3. Legends used in the Presentation
ADR American Depository Receipts
AIF Alternative Investment Fund
FC Financial Commitment
FIPB Foreign Investment Promotion Board
GDR Global Depository Receipts
GR Guaranteed Residence
JV Joint Venture
SDF Self Declaration Form
SOFTEX Software Export Declaration
WOS Wholly Owned Subsidiary

4. Presentation Schema
Introduction Relevant Definitions
Methods of Funding for
Investment in Overseas
JV/WOS
Investment by Capitalization
Investment in Equity of
Companies Registered
Overseas/ Rated Debt
Instruments
Acquisition of a Foreign
Company through Bidding or
Tender Procedure

5. Introduction
Overseas investments or financial commitment in JV and WOS have been recognised as
important avenues for promoting global business by Indian entrepreneurs
Direct investments by residents in JV and WOS abroad are being allowed, subject to the
FEM(Transfer or Issue of Foreign Security) Regulations, 2004, notified by the RBI
This discussion would be centric on the various sources to fund such investments and the
regulations regarding acquisition of a foreign company through bidding or tender procedure

6. Relevant Definitions
Wholly Owned Subsidiary
A foreign entity formed, registered or incorporated in accordance with the laws and regulations of the host country,
whose entire CAPITAL is held by the Indian party. [reg 2(q)]
Joint Venture
A foreign entity formed, registered or incorporated in accordance with the laws and regulations of the host country
in which the Indian party makes a direct investment; [reg 2(m)]
Joint Venture as per Accounting Standard 27 “Financial Reporting of Interests in Joint Ventures”
A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is
subject to joint control
Direct Investment
"Direct investment outside India" means investment by way of contribution to the CAPITAL or subscription to the
Memorandum of Association of a foreign entity or by way of purchase of existing shares of a foreign entity either by
market purchase or private placement or through stock exchange, but does not include portfolio investment. [reg
2(e)]

7. Relevant Definitions - Financial
Commitment
 Financial Commitment means the amount of direct investment by way of contribution to equity, loan and 100%
of the amount of guarantees and 50% of the performance guarantees issued by an Indian Party to or on behalf
of its overseas JV or WOS
 Any financial commitment exceeding USD 1 billion (or its equivalent) in a financial year would require prior
approval of the Reserve Bank even when the total FC of the Indian Party is within the eligible limit under the
automatic route (i.e., within 400% of the net worth as per the last audited balance sheet)
The “Total Financial commitment” of the Indian Party in all JVs/WOSs shall comprise of the following
100% of the amount of equity shares and/ or Compulsorily Convertible Preference Shares (CCPS)
100% of the amount of other preference shares
100% of the amount of loan
100% of the amount of guarantee (other than performance guarantee) issued by the Indian Party
100% of the amount of bank guarantee issued by a resident bank on behalf of JV or WOS of the Indian Party
provided the bank guarantee is backed by a counter guarantee / collateral by the Indian Party
50% of the amount of performance guarantee issued by the Indian Party provided that if the outflow on account of
invocation of performance guarantee results in the breach of the limit of the financial commitment in force, prior
permission of the Reserve Bank is to be obtained before executing remittance beyond the limit prescribed for the
financial commitment

8. Method of Funding for
Investment in an Overseas
JV/WOS

9. Sources of Funding Investment in
Overseas JV/WOS
Investment (or financial commitment) in an overseas JV / WOS may be funded out of one or more of the
following sources:
Drawal of foreign exchange from an AD bank in India
Capitalisation of exports
Swap of shares
• Valuation of the shares will have to be made by a Category I Merchant Banker registered with SEBI or an
Investment Banker outside India registered with the appropriate regulatory authority in the host country
• Approval of the FIPB will also be a prerequisite for investment by swap of shares if required under
FEM(Transfer or Issue of any Foreign Security) Regulations
Proceeds of ECBs or FCCBs
In exchange of ADRs/GDRs issued in accordance with the Scheme for issue of Foreign Currency Convertible Bonds
and Ordinary Shares (through Depository Receipt Mechanism) Scheme, 1993, and the guidelines issued thereunder
from time to time by the Government of India
Balances held in EEFC account of the Indian Party
Proceeds of foreign currency funds raised through ADR / GDR issues

10. Contd…
 In respect of Balances held in EEFC account of the Indian Party and Proceeds of foreign currency funds raised
through ADR / GDR issues, the limit of financial commitment vis-à-vis the net worth will not apply
 However, all investments or financial commitment made in the financial sector will be subject to compliance
with Regulation 7 of FEM (Transfer or Issue of any Foreign Security) Regulations*, irrespective of the method of
funding
General permission has been granted to persons resident in India for purchase/ acquisition of securities in the
following manner:
• out of funds held in RFC account
• as bonus shares on existing holding of foreign currency shares and
• when not permanently resident in India*, out of their foreign currency resources outside India
* Not permanently resident means a person resident in India for employment of a specified duration (irrespective
of length thereof) or for a specific job or assignment, the duration of which does not exceed three years

11. Investment by Capitalization

12. Capitalization of Exports and Other Dues –
Regulation 11
Indian Party is permitted to capitalise the payments due from the foreign entity towards exports, fees, royalties or
any other dues from the foreign entity for supply of technical know-how, consultancy, managerial and other services
within the ceilings applicable
• Capitalisation of export proceeds remaining unrealised beyond the prescribed period* of realization and fees,
royalties, commissions or other entitlements of the Indian party remaining unrealised from the date on which
such payment is due, such proceeds shall not be capitalised will require prior approval of the Reserve Bank
Indian software exporters are permitted to receive 25 per cent of the value of their exports to an overseas software
start-up company in the form of shares without entering into Joint Venture Agreements, with prior approval of the
Reserve Bank
*Regulation 9 of Foreign Exchange Management (Export of Goods and Services) (Amendment) Regulations, 2020 sets
out the period within which export value of goods/software/services are to be realised:
1) The exporter shall realize and repatriate the full value of goods/software/services to India within 9 months from
the date of export (or within such period as may be specified by the Reserve Bank from time to time) for all
exporters including SEZ Units, Status Holder Exporters, EOUs, Units in Electronic Hardware Technology Parks
(EHTPs), Software Technology Parks (STPs) and Bio-Technology Parks (BTPs) until further notice
2) In case of goods exported to a warehouse established outside India, the same may be realized within 15 months
from the date of shipment of goods (or within such period as may be specified by the Reserve Bank from time to
time)
Note: “Date of export” in relation to the export of software in other than physical form, shall be deemed to be the date
of invoice covering such export

13. Procedure of Export of Goods towards Equity –
Regulation 12
An Indian Party exporting goods/software/plant and machinery from India towards equity contribution in a JV/WOS
outside India shall declare it on GR/SDF/SOFTEX form*, which shall be superscribed as "Exports against equity
participation in the JV/WOS abroad" and also quoting Identification Number, if already allotted by Reserve Bank
Notwithstanding anything contained in Regulation 11 of the Foreign Exchange Management (Export of Goods and
Services) Regulations, 2000, the Indian Party shall within 15 days of effecting the shipment of the goods, submit to
the Reserve Bank a custom certified copy of the invoice through the branch of an authorised dealer designated by it
An Indian Party capitalising exports under Regulation 11 shall, within 6 months from the date of export, or any further
time as allowed by Reserve Bank, submit to Reserve Bank copy of the share certificate or any document issued by the
JV or WOS outside India to the satisfaction of Reserve Bank evidencing the investment from the Indian Party together
with the duplicate of GR/SDF/SOFTEX form through the branch of an authorised dealer designated by it
• Every exporter of goods or software shall make a declaration in the GR/SDF/SOFTEX Forms respectively,
containing true and correct material particulars including the amount representing the full export value of the
goods or software
• The same shall be furnished to the specified authority
• Declaration in Form GR/SDF to the Commissioner of Customs
• Declaration in Form SOFTEX to the designated official of Department of Electronics of Government of
India at the Software Technology Parks of India (STPIs) or at the Free Trade Zones (FTZs) or Export
Processing Zones (EPZs) in India
*GR/SDF/SOFTEX Forms

14. Investment in Equity of Companies
Registered Overseas/ Rated Debt
Instruments

15. Investment Grade Rating
An investment grade rating signifies the rating agency’s belief that the rated instrument is likely to
meet its payment obligations
In the Indian context, debt instruments rated 'BBB' and above are classified as investment
grade ratings
Instruments that are rated ‘BB‘ and below are classified as speculative grade category ratings
in which case the ability to meet the payment obligations is considered to be “speculative”
Instruments rated in the speculative grade are considered to carry materially higher risk and a
higher probability of default compared to instruments rated in the investment grade

16. Investment in Equity of Companies Registered
Overseas/ Rated Debt Instruments
Portfolio investments by listed Indian companies
• Listed Indian companies are permitted to invest up to 50% of their net worth as on the date of the last audited
balance sheet in
• (i) shares and (ii) bonds / fixed income securities, rated not below investment grade* by accredited /
registered credit rating agencies, issued by listed overseas companies
Indian Mutual Funds registered with SEBI are permitted to invest within an overall cap of USD 7 billion in the following
ADRs / GDRs** of the Indian and foreign companies
Equity of overseas companies listed on recognized stock exchanges overseas
Initial and follow on public offerings for listing at recognized stock exchanges overseas [continued in next slide]
**ADRs are shares issued in the U.S. from a foreign company through a depository bank intermediary while GDRs
are shares of a single foreign company issued in more than one country as part of a GDR program

17. Contd…
Foreign debt securities in the countries with fully convertible currencies, short- term as well as long-term debt
instruments with rating not below investment grade by accredited/registered credit agencies
Money market instruments rated not below investment grade
Repos in the form of investment, where the counter party is rated not below investment grade. The repos should
not, however, involve any borrowing of funds by mutual funds
Units / securities issued by overseas Mutual Funds or Unit Trusts registered with overseas regulators and investing in
(a) aforesaid securities, (b) Real Estate Investment Trusts (REITS) listed on recognized stock exchanges overseas, or (c)
unlisted overseas securities (not exceeding 10 per cent of their net assets)
Short-term deposits with banks overseas where the issuer is rated not below investment grade
Derivatives traded on recognized stock exchanges overseas only for hedging and portfolio balancing with underlying
as securities
Government securities where the countries are rated not below investment grade
Note: Investments made by listed Indian companies and Mutual Funds are to be reported online on a monthly basis
by the AD banks in the format as prescribed by the Reserve Bank from time to time

18. Contd…
A limited number of qualified Indian Mutual Funds, are permitted to invest cumulatively up to USD 1 billion in
overseas Exchange Traded Funds as may be permitted by SEBI
Domestic Venture Capital Funds / Alternative Investment Funds registered with SEBI may invest in equity and equity
linked instruments of off-shore Venture Capital Undertakings, subject to an overall limit of USD 500 million
• Accordingly, Mutual Funds / Venture Capital Funds / AIFs desirous of availing of this facility may approach SEBI for
necessary permission
General permission is available to the aforesaid categories of investors for sale of securities so acquired
Investments made by Venture Capital Fund (VCF) / Alternate Investment Fund (AIF), may be reported in the online
application

19. Acquisition of a Foreign Company
through Bidding or Tender
Procedure

20. Acquisition of a Foreign Company through
Bidding or Tender Procedure – Regulation 11
(1) On being approached by an Indian Party, which is eligible under the Regulations to make investment outside
India, an authorised dealer may allow remittance towards earnest money deposit or issue a bid bond guarantee
on its behalf for participation in bidding or tender procedure for acquisition of a company incorporated outside
India
(2) On the Indian party winning the bid,
• the authorised dealer may allow further remittances towards acquisition of the foreign company, subject to
the ceilings specified in Regulation 6 and
• the Indian Party shall submit, through the designated authorised dealer concerned, a report to the Reserve
Bank in Parts I and II of the Form ODI, as prescribed by the Reserve Bank from time to time, within 30 days of
effecting the final remittance
(3) For participation in bidding or tender procedure for acquisition of a company incorporated outside India which
does not fall within the provisions of sub-regulation (1), the Reserve Bank may, on application in Form ODI, allow
remittance of foreign exchange towards earnest money deposit or permit the authorised dealer in India to issue a
bid bond guarantee, subject to such terms and conditions as the Reserve Bank may stipulate

21. Contd…
In case the Indian Party is successful in the bid but the terms and conditions of acquisition of a company outside India
are
• not in conformity with the provisions of Direct Investment Regulations, or different from those for which
approval under sub-regulation (3) was obtained, the Indian Party shall submit application in Form ODI, to Reserve
Bank for obtaining approval for the foreign direct investment in the manner specified in Regulation 9 of
FEM(Transfer or Issue of any Foreign Security) Regulations*, or
• in conformity with the provisions of the Direct Investment Regulations or are same as those for which approval
under sub-regulation (3) was obtained, the Indian Party shall submit a report to the Reserve Bank giving details of
the remittances made within 30 days of effecting the final remittance
*Regulation 9
An application made under sub-regulation in Form ODI, as prescribed by the Reserve Bank
(a) for the purpose of investment by way of remittance from India, in an existing company outside India, shall be
accompanied by the valuation of shares of the company outside India, made—
(i) where the investment is more than USD 5 million, by a Category I Merchant Banker registered with SEBI or an
Investment Banker/Merchant Banker registered with the appropriate regulatory authority in the host country and
(ii) in all other cases, by a Chartered Accountant or a Certified Public Accountant
(b) for the purposes of investment by acquisition of shares of an existing company outside India where the consideration
is to be paid fully or partly by issue of the Indian party's shares, shall be accompanied by the valuation carried out by a
Category I Merchant Banker registered with the SEBI or an Investment Banker/Merchant Banker registered with the
appropriate regulatory authority in the host country

22. Thank You!
Scan the QR Code to Join our
Research Group on WhatsApp
Scan the QR Code to explore more
Research from our Website
DVS Advisors LLP
India-Singapore-London-Dubai-Malaysia-Africa
www.dvsca.com
Copyrights © 2020 DVS Advisors LLP