The Reserve Bank of India (RBI) issued two notifications today (June 30, 2011) making India's foreign direct investment (FDI) rules just a little easier for some foreign investors and Indian companies.
The first notification should be welcomed by foreign investors who require prior government approval for their FDI into India. In cases where such approval is required, Indian companies can now (once the government approval for FDI has been obtained) issue shares to a foreign investor not just against cash, but also against capital imports from and pre-operating expenses paid for by the foreign investor. To take advantage of this liberalization the parties will need to establish an independent value for the capital imports or pre-operating expenses and comply with the anti-abuse provisions set out in the notification.
The second notification brings relief to Indian companies that are looking to prematurely buyback their foreign currency convertible bonds (FCCBs). The old rules on premature FCCB buybacks were due to lapse today, but the RBI has now extended the sunset provision to March 31, 2012. While doing so, it has also reduced the minimum discount to book value under which the buybacks can be undertaken by the Indian companies (down to 8% if the buyback is from foreign currency funds held and to between 10% and 20% if the buyback is from internal accruals).