The government has decided to increase the ceiling for
foreign direct investment (FDI) in asset reconstruction companies (ARCs) to 74
per cent from the existing 49 per cent.
This, however, is subject to the condition that no sponsor
should hold more than 50 per cent of the shareholding in an ARC either by way
of FDI or by routing through an FII. Foreign investment in ARCs would also need
to comply with the FDI policy in terms of entry route conditionality and
sectoral caps.
The 74-per cent foreign investment limit in ARC would be a
combined limit for both FDI and FII and there will therefore be no prohibition
on investment by FII in ARCs, an official release said today.
The revision in the ceilings for FDI and FII have been
reviewed in consultation with stakeholders and the sector regulators, it said.
The total shareholding of an individual FII in an ARC,
however, should not exceed 10 per cent of its total paid-up capital.
The limit of FII investment in security receipts (SRs) may
also be enhanced to 74 per cent from 49 per cent at present.
Further, the individual limit of 10 per cent for investment
of a single FII in each tranche of SRs issued by ARCs may also be dispensed
with, the release said, adding that such investments should be within the FII
limit on corporate bonds prescribed from time to time, and in compliance with
the sectoral caps under the FDI regulations.
The Reserve Bank of India (RBI) will separately issue
necessary notification / circular under the Foreign Exchange Management Act
(FEMA).
Further, the Securities and Exchange Board of India (SEBI)
will also issue necessary notifications under SEBI (FII) Regulations.
Under extant rules foreign direct investment in the equity
capital of asset reconstruction company is permitted up to 49 per cent.
Besides, foreign institutional investors registered with the Securities and
Exchange Board of India (SEBI) has been allowed to invest in security receipts
issued by ARCs up to 49 per cent of each tranche of scheme of SRs.
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