FDI India+Presntatn

8/4/2019 FDI India+Presntatn

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WHAT IS FDI ?Foreign direct investment (FDI) in its classic form

is defined as a company from one country making a

physical investment into building a factory in anothercountry.

Include investments made to acquire lasting interest inenterprises operating outside of the economy of the

investor.


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Entry Strategies


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Foreign Company has the following options to set up business

operations in India :

By incorporating a company under the Companies Act,

1956

> A wholly owned subsidiary

> Joint venture company - existing company or newcompany with domestic partner

As an Unincorporated entity

> Liaison Office> Project Office

> Branch Office


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The Entry Strategy: Subsidairy

Company A company who has a company in another

country but more than 50% of the voting

stock is controlled by the parent company

the company under which the subsidiary

is incorporated must adhere to the laws ofthe country in which the subsidiary operates

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The Entry Strategy: Joint Venture

Company

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The JV parties agree to develop, for a finite time, a

new entity and new assetsby contributing equity

They both exercise control over the enterprise andconsequently share revenues, expenses and assets.

Advantages Limited liability

Market Penetration

Local Partners Expertise and Experience


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The Entry Strategy: Liaison Office

Liaison office forPromotion of business interest; spreading

awareness of companys products; explore

opportunities; work as channel of communicationetc.

Cannot carry on any commercial, trading orindustrial activity or earn any income in India

Is required to maintain itself out of inwardremittances received from abroad through normalbanking channels.


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PROJECT OFFICE> General permission to foreign entities to establish Project

/Site Offices (temporary in nature)

> Such offices cannot undertake or carry on any activity

other than the activity relating and incidental to

execution of the project

> General permission also for remitting surplus funds after

completion of project on production of the following

documents:


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BRANCH OFFICE

> Foreign companies engaged in manufacturing

and trading activities abroad are allowed to set

up Branch Offices in India for specified

purposes

> Branch Offices are established with the approval

of RBI

> Permitted to remit outside India profit of thebranch


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FACTORS REQUIRED TO

ATTRACT FDI

Low cost BUT Qualified, Educated/Skilled Labor Pool.

Long-term Market Potential OR Yields greater than can beachieved Domestically.

Access to Natural Resources.

Geography

Stability of the economic and Political Environment.


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ADVANTAGES OF FDI

Increase in Domestic Employment/Drop in unemployment

Investment in Needed Infrastructure.

Positive Influence on the Balance of Payments.

New Technology and Know How Transfer.

Increased Capital Investment.

Targeted Regional and Sectoral Development.


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DISADVANTAGES OF FDI

Industrial Sector Dominance in the Domestic Market.

Technological Dependence on Foreign Technology

Sources.

Disturbance of Domestic Economic Plans in Favor of

FDI-Directed Activities.

Cultural Change Created by Ethnocentric Staffing

The Infusion of Foreign Culture , and Foreign

Business Practices


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Evolution ofEconomic

Liberalization


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Progressive LiberalisationPre-1991 FDI was allowed selectively up to 40% under FERA

1991 35 high priority industry groups were placed on the Automatic Route for FDI up

to 51%

1997 Automatic Route expanded to 111 high priority industry groups up to 100%/ 74%/

51%/50%

2000 All sectors placed on the Automatic Route for FDI except for a small negative list

Post 2000 Many new sectors opened to FDI; viz., insurance (26%), integrated townships

(100%), mass rapid transit systems (100%), defence industry (26%), teaplantations (100%),print media (26%).

Sectoral caps in many other sectors relaxed;


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The Entry Process.

Automatic Route Prior Permission

Investing in India

General rule

Inform RBI within 30 days of

inflow/issue of shares

Pricing: FEMA RegulationsUnlisted CCI

Listed SEBI

Cap of Rs. 600 Crore

(approx SGD 222 million)

By exception

Approval of Foreign

Investment Promotion

Board needed.Decision generally

within 4-6 weeks


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AUTOMATICROUTE No need of Prior Approval From FIPB,RBI,GOI.

BUT

The investors are only required to notify the Regional Office

concerned of the Reserve Bank of India within 30 days of

receipt of inward remittances.

AND

File the required documents along with form FC-GPR with that

Office within 30 days of issue of shares to the non-resident

investors.


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THE FIPB

ROUTE FDI in activities not covered under the

automatic route require prior government

approval.

Approvals of all such proposals including

composite proposals involving foreigninvestment/foreign technical collaboration is

granted on the recommendations of FIPB.


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CCFI ROUTE

Investment proposals falling outside the automatic

route.

And Having a project cost of Rs. 6,000 million or more

would require prior approval of Cabinet Committee

of Foreign Investment (CCFI).

Decision of CCFI usually conveyed in 8-10 weeks.

Thereafter, filings have to be made by the Indian

company with the RBI.


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Other modes of Foreign Direct

Investment

GDR, ADR, FCCB

Indian Companies allowed to raise equitycapital in the international market through

the issue of GDRs/ ADRs/FCCBs.

No ceiling on investment


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Other modes of Foreign Direct

InvestmentGDR, ADR, FCCB (Contd.)

No end-use restrictions on GDR/ ADR/ FCCB issueproceeds

Except Investment in real estate

Stock markets.

Government clearance required when sectoral cap is

exceeded, or for a project not falling under AutomaticRoute.

25% of the FCCB proceeds can be used for generalcorporate restructuring.


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ADVANTAGES OF INDIA Stable democratic environment over 60 years of independence

Large and growing market

World class scientific, technical and managerial manpower

Cost-effective and highly skilled labor

Abundance of natural resources


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CURRENT DATAON FDI INFLOW IN INDIA


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Luthra & Luthra Law Offices 24


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S.NO Financial year (april-

march)

Amount of FDI inflows (including advance) % growth over previous

year( in us $ terms)

Financial yyears 2000-2010 In Rupees(crores) In US$ million

1 2000-2001 12645 2908 -

2 2001-2002 9361 4222 (+)45

3 2002-2003 14848 3116 (-)264 2003-2004 11945 2597 (-)17

5 2004-2005 17138 3759 (+)45

6 2005-2006 24584 5540 (+)47

7 2006-2007` 56390 12492 (+)125

8 2007-2008 98642 24575 (+)97

9 2008-2009 123025 27331 (-)11

10 2009-2010 123120 25834 (-)0611 2010-2011(upto august

10 )

40816 8887 -

Cumulative total (frm

april 00 to august

2010)

542514 121261 -

FINANCIAL YEAR-WISE FDI EQUITY

INFLOWS


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Mergers and Acquisitions Merger when two or more companies

combines into one company ,they may

combine with existing company or mayform a new company

Acquisition is the act of acquiring effective

control of one company over assets andmanagement of another company without

any combination of the companies.


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s.no year Companies type sector Transactionamount

1 2007 Suzlon energy and Repower acqusition power 1.7 billion

2. 2007 Tata steel and Corus acqusition Steel 12.2 billion

3. 2007 Vodafone and Hutch essar acqusition Telecom 11.1 billion

4. 2007 Indian aluminium and

handalcoand Novelis

acqusition Minerals 6 billion

5. 2008 Daichi and Ranbaxy acqusition pharma 4.5 billion

6. 2008 Docomo and Tata

teleservices

acqusition telecom 2.7 billion

7. 2008 Hdfc and Centurion bank merger Banking 2.4 billion

8 2009 Sterlite industries ltd and

Asarco LLC

acqusition Copper 1.8 billion

Recent merger and acquisitions


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Acquisition of Maruti by Suzuki Suzuki Motor of Japan has gained control of India's

biggest automaker, Maruti Udyog

The deal hands Suzuki a 54% controlling stake in wh

was until now a fifty-fifty joint venture with the India

government. The government will further reduce its stake in Maru

to 25% through a share flotation by March 2003, wit

the remainder being sold by March 2004. The change of management should also revitalise

Maruti which has seen its market share slipping from

80% to less than 60% in the last five years. 28


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Paint Wars

ICIs Bid to buy Asian Paints India Ltd.


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Indian Paint IndustryORGANIZED SECTOR BY MARKET SHARE

# 1 Asian Paints (33%)

# 2 Goodlass Nerolac (18%)

# 3 Berger Paints (14%)

# 4 ICI India (11%)

# 5 Jenson and Nicholson (6%)

Total Market: Rs. 21,476 MM


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Players - Asian Paints $175MM, Rs. 378 per share on 8/1/97

Market leader with strengths in

Distribution, Management, Decorative Paints

Majority held by 4 promoters

Chokseys 9.5%

Danis, Vakils, and Chowksis 41.06%

Public and Mutual Funds 28%


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Players - ICI Plc., UK $15 BN, Diversified, ICI India - Rs. 2,254

MM -- < 1/2 of Asian Paints

Strengths

Financial, Industrial Paints

ICI India

Paints 43% of sales - thrust area!


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The Bid - Motivation

Expandability

Import Barriers

Management

Brand Name Synergies


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What Happened Stock hit an all time low on 23rd June 1998

at Rs. 198 per share

KMCC had to sell 4.5% to Unit Trust of

India (mutual fund) and remaining back to

the promoters at an average of Rs. 280.

KMCC/ICI - UK bore huge losses Rs 245MM (ICI Rs 140 MM, KMCC Rest)


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Thank You

PRESENTED BY-Kanika Sikand

Neeraj Motiani

Dheeraj Vijay

Anant Madhwani

Nisha Advani

Documents

FDI India+Presntatn