FIIs locked-in funds floor may be raised

New Delhi, May 29 | Updated: May 30 2007, 05:30am hrs
The Reserve Bank of India is considering some executive conditions, restricting the pre-IPO placements by foreign institutional investors to realty firms. This may affect the flow of foreign institutional investments into the real estate sector. The central bank is expected to treat such investments as foreign institutional investments instead of foreign direct investment, as originally discussed.

The new norms, likely to be notified soon, may have the minimum locked-in investment increased from the current level of $5 million for a joint venture with an Indian firm or a project that involves Indian shareholders. At present, foreign investments above $5 million are fully tradeable.

This lock-in cap could be raised to even the total foreign investment in a real-estate project, a government official told FE. According to industry estimates, most realty firms or project are getting not less than $40 million of foreign investments each via the pre-IPO placement route. Once the new norms are in place, the entire foreign investment could be locked in.

Further, the RBI was expected to increase the lock-in period for such investment from one year to three years while treating it as FII, the official said.

Real Money

New norms may have minimum locked-in investment increased from the current level of $5 mn
According to estimates, most realty cos are getting not less than $40 mn of foreign investments
The RBI was expected to increase the lock-in period from one year to three years

However, FI investments will be exempted from restrictions imposed on FDI, which include development of at least 25 acres of land in housing plots, construction of 50,000 sq meter of built-up area, completion of at least 50% of a project in five years and a ban on selling under-developed housing plots.

The issue of pre-IPO foreign investments has been discussed with various ministries. But now, a consensus seems to have emerged. The issue has more or less been resolved. The RBI may use its discretionary powers to issue the fresh norms in this regard, the official said.