Indian Company Investing in Foreign Company

Indian Company can make investment in the shares of a foreign company for various reasons like technical knowhow, export of goods or services, import of goods or services and sharing of research and development costs. Such investments by Indian companies in the shares of a foreign company are termed as joint ventures. In this article, we look at the procedure for investing in the shares of a foreign company.

Pre-Investment Checklist

Prior to investing in the shares of a foreign company, the following must be verified by the Indian Company:

Indian company can make direct investment in a foreign entity engaged in real estate business or banking business only with RBI approval.
The company should not be on RBI's export caution list or list of defaulters to the banking system.
The company must have filed upto date Annual Performance Report for all overseas investment in the format provided.
Indian company can route all transactions relating to the investment only through one branch of an authorised dealer.
The company's total financial commitment should not exceed 400% of the net worth of the Indian company as on the date of the last balance sheet.

The networth of the company can be calculated including the networth of holding or subsidiary company. In determining total financial commitment, the following are to be reckoned:

Remittance by market purchases, namely in freely convertible currencies.
Capitalization of export proceeds and other dues and entitlements.
100% of the value of guarantees issued by the Indian party to or on behalf of the JV.
Utilisation of the amount raised by issue of ADR/GDR by the Indian party.
External commercial borrowing in conformity with other parameters of the ECB guidelines.
Sway of shares.
ADR/GDR stock swap subject to the valuation norms and sectoral cap.

Filing for Investment in Foreign Company

In-eligibility: In case the company does not satisfy the eligibility norms as mentioned above, then an application can be made to the Chief General Manager, Reserve Bank of India. Automatic Route: In case of investment through the automatic route, part I of form ODI along with supporting documents must be submitted with recommendations by designated AD Category-1 bank. Approval Route: In case of investment through the approval route, part I of form ODI along with supporting documents must be submitted with recommendations by designated AD Category-1 bank for RBI approval.