Consider the following : 1. Foreign currency convertible bonds 2. Foreign institutional investment with certain conditions 3. Global depository receipts 4. Non-resident external deposits Which of the above can be included in Foreign Direct Investments?
Foreign Currency Convertible Bonds - It is a bond issued by an Indian
company in foreign currency and subscribed by a non-resident in foreign currency and convertible into ordinary shares of the issuing company, either in whole or in part.
FCCBs represent a debt obligation of the corporate. Investors have the option to redeem or convert them into underlying local shares or global depository receipts. If investors prefer to hold the FCCBs until the redemption date, the corporate has to redeem the FCCBs on the redemption date.
Dilution would take place as and when debt is converted into equity. Since these bonds are convertible into equity shares over a period of time as provided in the instrument, therefore they are covered under FDI policy & counted towards FDI.
If they are redeemed they count as ECB & a debt obligation, only on converting into equity it is counted towards FDI. Hence, statement 1 is correct.
Foreign institutional investment with certain conditions -
In India, as per SEBI (FPI regulations), 2019, a particular FII is allowed to invest upto 10% of the paid-up capital of a company, which implies that any investment above 10% will be construed as FDI. Hence, statement 2 is correct.
According to IMF and OECD definitions, the acquisition of at least 10% of the ordinary shares or voting power in a public or private enterprise by non-resident investors makes it eligible to be categorized as foreign direct investment.
Global Depository Receipt - Any instrument issued in the form of a depository receipt or certificate created by the oversees depository bank outside India and issued to non-resident investors against underlying shares or foreign currency convertible bonds of issuing company.
GDRs are equity representing share-holders funds, foreign investment in the form of equity shares issued outside India by a Depository Bank, on behalf of an Indian company which is covered under the FDI policy. GDR proceeds are reckoned as Foreign Direct Investment. Hence, statement 3 is correct.
Non-resident external deposits - NRI investments that are repatriable are considered FDI while non-repatriable investments are considered domestic investments. Hence, statement 4 is incorrect.