The Reserve Bank of India (RBI) is expected to vet all proposals for overseas direct investment by corporates , including the $2.5-billion Apollo Tyres deal with Cooper Tire & Rubber Company of the US, to see whether they are in tune with the new norms that have kicked in to curtail the outflow of foreign exchange and strengthen the rupee.
A senior finance ministry official confirmed that the new rules, which stipulate that companies will now have to seek RBI's permission if they want to invest any amount beyond their net worth abroad, will be applicable for all pending applications. Earlier, a company could invest as much as four times its net worth in an overseas venture.
The official said that the new norms were introduced as there was a sudden spurt in such proposals worth $1.7-$1.8 billion in the earlier months to $3.24 billion in July. Some of these proposals involve investment routed through tax havens such as British Virgin Islands and Mauritius.
According to sources, although the application of Apollo Tyres for buyout of Cooper Tire was filed before the announcement of the new guidelines, it would be scrutinised in the light of the changes in RBI norms. The acquisition is around 450 per cent of the net worth of Apollo Tyres. This would necessitate that the deal be covered under the approval route, sources said.
Apollo Tyres will raise $1.9 billion through bond market in the US to fund it purchase the US company. The deal was announced in June. Apollo Tyres is reported to have made an investment of $519.75 million in its wholly-owned unit in Mauritius for the deal. Investment in oil and gas exploration and those by Navratna public sector units are the sole exception to the new rule. Companies were allowed to invest up to four times their net worth (which includes reserves and profit). Indian firms had invested over $7 billion overseas in 2012-13.
Similarly, for individuals, the annual cap on automatic outflow has been slashed from $200,000 to $75,000. Besides, there is now a ban on overseas real estate purchase. With the export earnings falling far short of the import bill, the economy is saddled with a huge current account deficit that keeps the rupee under pressure. This has made the country especially vulnerable to hot overseas money moving away from emerging markets in anticipation of a winding back of the US Federal Reserve's stimulus programme.
A senior finance ministry official confirmed that the new rules, which stipulate that companies will now have to seek RBI's permission if they want to invest any amount beyond their net worth abroad, will be applicable for all pending applications. Earlier, a company could invest as much as four times its net worth in an overseas venture.
The official said that the new norms were introduced as there was a sudden spurt in such proposals worth $1.7-$1.8 billion in the earlier months to $3.24 billion in July. Some of these proposals involve investment routed through tax havens such as British Virgin Islands and Mauritius.
According to sources, although the application of Apollo Tyres for buyout of Cooper Tire was filed before the announcement of the new guidelines, it would be scrutinised in the light of the changes in RBI norms. The acquisition is around 450 per cent of the net worth of Apollo Tyres. This would necessitate that the deal be covered under the approval route, sources said.
Apollo Tyres will raise $1.9 billion through bond market in the US to fund it purchase the US company. The deal was announced in June. Apollo Tyres is reported to have made an investment of $519.75 million in its wholly-owned unit in Mauritius for the deal. Investment in oil and gas exploration and those by Navratna public sector units are the sole exception to the new rule. Companies were allowed to invest up to four times their net worth (which includes reserves and profit). Indian firms had invested over $7 billion overseas in 2012-13.
Similarly, for individuals, the annual cap on automatic outflow has been slashed from $200,000 to $75,000. Besides, there is now a ban on overseas real estate purchase. With the export earnings falling far short of the import bill, the economy is saddled with a huge current account deficit that keeps the rupee under pressure. This has made the country especially vulnerable to hot overseas money moving away from emerging markets in anticipation of a winding back of the US Federal Reserve's stimulus programme.
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