Revised India FDI regulations threaten PE exits

The Department of Industrial Policy and Promotion (DIPP), seeking to revise the use of put and call options on FDI transactions, ruled that any investment instruments with built-in options could not be used as part of FDI, The Economic Times reported. It is understood that the policy, which was issued on September 30 and came into effect on October 1, would effectively cover all transactions between Indian and foreign entities, including joint ventures.

Investments made by offshore private equity funds often include a provision that allows the fund to exit through a buyback or a put and call option. According to the DIPP, such equity instruments will be considered external commercial borrowing (ECB), which is subject to caps and limits.

It is not suggested that the DIPP is targeting private equity directly, rather real estate transactions that met FDI requirements but were in fact ECBs

"It can be termed the single biggest deterrent for private equity transactions," Punit Shah, a tax and regulatory services partner at KPMG, told The Economic Times. "In an economy like India where exit options are very limited, including IPOs, such a step would adversely impact the FDI flows into the country."

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Regulation
• South Asia
• Exits
• India
• regulation
• Exit
• FDI