Panel of secretaries suggests new guidelines for FDI inflow in key sectors
The new guidelines clarify investment norms for sectors that have caps of 26 and 49 per cent, while staying within Sebi norms
A panel of secretaries has issued guidelines aimed at avoiding any clash with markets regulator Securities and Exchange Board of India (Sebi) on foreign direct invesments in sectors that have an FDI cap of 26 and 49 per cent.
The move is expected to bring more clarity to guidelines for FDI in such sectors.
In case of sectors with 26 per cent FDI cap, the panel has decided that foreign investor will make an open offer for 26 per cent of the equity of the share capital, making it a one stage process. In case of a shortfall resulting from the open offer, the gap will be made up by issue of shares by the Indian company either from promoter's holdings or by fresh issue of shares to the foreign investor as per SEBI guidelines.
In sectors with an FDI cap of 49 per cent, if a foreign investor picks up 23 per cent equity, it would make an open offer for the remainder. Subsequently, the shortfall could be made up by issue of shares either from the promoter's own shares or by fresh issue of shares to the foreign investor. The limit of 49 per cent equity would be calculated on the basis of the expanded share capital.
The implications of the move, however, could be far-reaching. If the new guidelines are adopted, Sebi will not need to clarify sector-specific guidelines with respect to the recently announced takeover code.
The recommendations of the panel has come in the context of the crisis in the aviation sector. A group of ministers recently recommended opening up the sector to up to 49 per cent FDI by foreign airlines. That proposal is currently awaiting the Cabinet's approval
At a meeting in the first week of February attended by the secretaries of economic affairs, civil aviation, DIPP, Sebi chairman U.K. Sinha, and senior finance ministry officials, it was decided that the guidelines would cover FDI inflow in sectors such as insurance ,retail and pension, that could use the same methodology for calculating and staying within FDI FDI limits, while honouring Sebi guidelines.
Regulation 3 and 4 of the takeover code mandate that any acquisition of share or voting rights that allows the buyer to acquire 25% or more of the voting rights can only be made after an open offer. Regulation 7 of the takeover code mandates that such an open offer has to be for at least 26% of the total shares of the target company.