ODI-FDI Share Swap Is Now Permitted !

[This guest post was authored on 09 September 2024 by Saurabh Jain, a qualified Chartered Accountant (CA), Company Secretary (CS) with a Master’s Degree in International Business (MIB) and over 16 years of experience in serving the corporate sector. If you have any queries regarding this article, you can reach out to him at saurabh@dconsulting.in].

In an important amendment, Ministry of Finance notified the Foreign Exchange Management (Non-debt Instruments) (Fourth Amendment) Rules, 2024 on 16 August 2024 to streamline Foreign Direct Investment (FDI) and Overseas Investment (OI) regulations.

1. Cross-Border share swaps: Earlier, in a non-cash transaction involving share swap, issuance of shares by an Indian company to a non-resident/ foreign entity against acquisition of shares of an overseas company owned by such foreign seller was not permitted.

Now, by Insertion of new rule 9A, Indian companies are allowed to issue or transfer equity instruments in exchange for foreign company equity instruments. This is one of the most significant amendment facilitating FDI and ODI exchanges and enhancing cross-border mergers and acquisitions.

2. Downstream Investments: The amendments clarify the treatment of downstream investments by Overseas Citizen of India (OCI)-owned entities, aligning them with Non-Resident Indian (NRI)-owned entities.

3. The definition of "Control" has been harmonized with the Companies Act, 2013.

4. The definition of a "startup company" has been updated to refer to a private company identified as a startup under specific government notifications.

5. Foreign Portfolio Investments Liberalised: Now the requirement of the government approval is pegged to the sectoral or statutory cap and is not limited to 49%, provided that such investment does not result in transfer of ownership and/ or control of the resident Indian company from resident Indian citizens to non-residents.

6. Sectoral caps and entry routes are introduced for specific activities, such as White Label ATM Operations (WLAO), which can have 100% foreign direct investment under the automatic route subject to Reserve Bank of India guidelines.

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