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Equity Investment (FDI)

M Shekhar (Chief Finance Officer) (22 Points)

17 May 2021

An OVERSEAS BODY had invested a sum of 100 Cr. as FDI in ABC LTD. (an Indian Company) who out of the same funds made some investment in XYZ LTD. (a Hospital India).

Now OVERSEAS BODY is a Equity Holder and XYZ LTD. is an Investment in the books of of ABC LTD.

QUERY- Can ABC LTD. transfer its holding in XYZ LTD. (a hospital in India) to the OVERSEAS BODY to nullify and/or as consideration against buyback of equity of OVERSEAS BODY.

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6 Replies

CA. Sourav Sarkar (Chartered Accountant ) (24578 Points)
Replied 17 May 2021

I think it will not be possible

sabyasachi mukherjee (25988 Points)
Replied 17 May 2021

Query is an investment in stake of another company .
% of the stake.

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 17 May 2021

If overseas has control alone, stake in ABC will result in consolidation and XYZ will be consolidated as associate if ABC has 20% significant influence in XYZ. If ABC has no significant influence, then overseas will show it as investment as per IndAS financial instruments.

If overseas does not have control alone on ABC ie., more than 50% stake, it means ABC is not a subsidiary to overseas, then ABC is the parent and overseas is an shareholder. Then, it will treat XYZ as an associate or an investment or a subsidiary. Here XYZ is an investment as per your notes.

So yes you can dispose your investment in exchange to overseas to buy back the stake from them. Pls. Let me know if you have any doubts. Just like above %stake

sabyasachi mukherjee (25988 Points)
Replied 17 May 2021

1. The overseas doesn't have sole control over the company.The querist has not said that.

2.If the querist says that then being a subsidiary/associate is justified.

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yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 17 May 2021

I just gave off scenarios as a gist about business combinations.

dhaval thakkar (CA) (82 Points)
Replied 27 May 2021

This is swap of shares under fema... ODI and FDI leg both are involved.. before you do all this ... you need to make sure that FDI and downstream complainces are taken cared of.

thereafter you will be able to do swap with approvals

6.Investment by way of share swap
In the case of investment by way of share swap, AD Category – I banks are additionally required to submit to the Reserve Bank the details of transactions such as number of shares received / allotted, premium paid / received, brokerage paid / received, etc., and also confirmation to the effect that the inward leg of transaction has been approved by FIPB and the valuation has been done as per the laid-down procedure and that the overseas company’s shares are issued / transferred in the name of the Indian investing company. AD Category – I bank may also obtain an undertaking from the applicants to the effect that future sale / transfer of shares so acquired by Non-Residents in the Indian company shall be in accordance with the provisions of Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to time.