Apotexs R500-cr investment caught in greenfield dilemma

Written by Anandita Singh Mankotia | Soma Das | New Delhi | Updated: May 10 2012, 06:14am hrs
Apotex Pharma Holdings, one of the largest generic drug firms of Canada, is planning to invest Rs 500 crore in its wholly-owned Indian subsidiary, Apotex Research, to set up a solid dose formulation facility. The Canadian firm, which also figures among the top 10 generic firms in the US, the largest drug market globally, has sought the governments approval for the capital infusion. However, this request has raised the governments eyebrows on whether such funding of existing subsidiaries by foreign multinationals can qualify as greenfield investments.

Interestingly, Apotex dubs it as an infusion in a strictly greenfield project and promises that the proceeds would not be used directly or indirectly to acquire or merge any existing company in the country.

For investments in a greenfield project in the pharmaceutical sector, 100% foreign direct investment (FDI) is allowed under the automatic route. But the government has chosen to view Apotexs investment plans through a different lens. The Foreign Investment Promotion Board (FIPB) has said as Apotex Research is an existing company, and therefore 100% FDI will only be allowed only through the FIPB route.

Apotex is in the process of expanding its production capacity and has started constructing a solid dose formulation plant. The company has invited subscription from its holding company towards FDI to buy additional equity shares. The proposed expansion doesnt involve any merger or acquisition of any existing business in India. It is altogether a new greenfield project, Apotex has written in its submission to the government.

Apotexs proposal has been put on hold for now. During an inter-ministerial consultation on the project, the department of pharma had requested for deferment of decision while the ministry of health had sought a copy of the proposal. The routing of pharma FDI proposals through FIPB has been suggested as a temporary arrangement till the Competition Commission of India (CCI) braces itself with the technical and resource support system to take up the task of vetting FDI proposals.

This comes at a time when MNCs are whining about the prevailing uncertain policy environment, which they claim is making the pace of investment in the sector sluggish. With differences having cropped up among the ministry of health, commerce, finance and the department of pharma on whether or not to restrict FDI in the sector, the Prime Ministers Office (PMO) stepped in to rule that FDI will be allowed without limit under the automatic route for greenfield investments.

In case of brownfield investments, the PMO said last October that FDI will be allowed through FIPB route for a period of up to six months, during which period the CCI will put in place necessary regulations for effective oversight on M&As to ensure balance between public health concerns and attracting FDI in the sector. Thereafter, the requisite oversight will be done by the CCI entirely in accordance with the competition laws of the country.