Sebi’s overseas investment rules: Before investing abroad, investors must adhere to these

An Indian entity can invest up to four times of its net worth in a foreign entity. It is permitted to put up to 50 percent of its net worth in overseas portfolio investment. One may transfer equity capital by way of sale to a person resident outside India. These are some of the rules announced recently by the ministry of finance.

These rules entail a set of provisions under which Indian investors can make investment in overseas companies, for instance when would Indian investors be entitled to receive bonus shares issues by overseas companies, and when would they require no objection certificate from regulatory agencies, among others.

Here is the snapshot of rules one must adhere to before making a direct overseas investment:

A. Mode of payment: A person making overseas investment may make payment by one of the following modes: remittance made through banking channels; from funds held in an account maintained in accordance with the provisions of the Act; by swap of securities; by using the proceeds of American Depository Receipts (ADRs) or Global Depositary Receipts (GDRs) or stock swap of such receipts or external commercial borrowings raised.

B. Evidence of investment: A person acquiring equity capital in a foreign entity, which is reckoned as ODI, shall submit to the bank share certificates or any other relevant documents as an evidence of such investment in the foreign entity within six months from the date of effecting remittance

C. Bona fide business: One can make any investment outside India in a foreign entity engaged in a bona fide business activity subject to a number of limits and the conditions laid down in these rules and regulations:

D. Structure of company: One must ensure that the structure of such subsidiary or step-down subsidiary of the foreign entity comply with the structural requirements of a foreign entity.

E. Prior approvals: An overseas investment in a foreign entity incorporated in Pakistan will need a set of prior approvals of the Central Government

F. Rights issue: An investor who has equity capital of any foreign entity may invest in the equity capital issued by such entity as a rights issue; or may be granted bonus shares subject to the terms and conditions under these rules.

G. Wilful defaulter: A person who has a non performing asset account and who is wilful defaulter by any bank or under investigation needs to get a no-objection certificate from the lender bank or investigative agency or regulatory body.

H. Selling the stake: A person resident in India holding equity capital can transfer such investment but in compliance with the limits and subject to the conditions. For the purpose of transfer, one can transfer equity capital by way of sale to another person, who is eligible to make such investment under these rules, or to a person outside India

I. Mergers: In case the transfer is on account of merger, amalgamation or demerger or on account of buyback of foreign securities, transfer will require the approval of the competent authority.

J. Restricted entities: No person is allowed to make overseas direct investment in a foreign entity engaged in real estate activity, gambling in any form, and dealing with financial products linked to the rupee without a specific approval of the Reserve Bank.