PSUs won?t need FIPB nod for public issues

In an attempt to make the fiscal?s disinvestment target of R40,000 crore more achievable, the government plans to exempt public sector companies from taking mandatory approval from the foreign investment promotion board. The exemption will help reduce the time taken to make a public float that includes participation of foreign funds as well. The move essentially removes one layer of statutory approval before a market offering, reducing the overall time to complete an issue.

Written by Rajat Guha

June 3, 2011 01:37 IST

In an attempt to make the fiscal?s disinvestment target of R40,000 crore more achievable, the government plans to exempt public sector companies from taking mandatory approval from the foreign investment promotion board (FIPB). The exemption will help reduce the time taken to make a public float that includes participation of foreign funds as well.

The move essentially removes one layer of statutory approval before a market offering, reducing the overall time to complete an issue.

An FIPB approval for a foreign direct investment proposal normally takes around two months, adding to the time taken to complete a market offer as clearances are also required from other agencies like Sebi and the Reserve Bank of India.

At present, guidelines under the Foreign Exchange Management Act have no provisions for transfer of share to a non-resident in a public issue. This means that companies offering a portion of issue proceeds to overseas investors need to get the nod from a government agency to keep them in the loop. A non-resident can be an NRI or an FII or any other category of overseas investors.

The changes will benefit a host of PSU offers lined up for this fiscal including SAIL, ONGC and Bhel.

While some of these companies qualify under government guidelines to fast-track a public offer, others would now benefit as exemption from FIPB clearance will help them to wrap up their market offer in a short period. Most of these companies operate sectors that fall under the automatic route; yet they approach FIPB due to lack of clarity in FEMA guidelines. ?This is a good move that will remove ambiguity from the current regulations and smoothen the ride for foreign funds participating in forthcoming IPOs and FPOs of PSUs,? said Saroj Jha, partner with Delhi-based law firm SRGR Associates. ?Since current foreign investment policies are silent on whether such investments need FIPB approval, companies routinely take its approval even if it means some delay,? Jha said. The changes are being proposed only for PSUs initially as the government believes that they could be monitored effectively. Moreover, it would help fast-track several large public offers proposed for current year, most of which are from public sector enterprises. Several PSUs are lined up for disinvestment in 2011-12 as part of government’s disinvestment programme. These include large and medium-sized companies such as SAIL, ONGC, IOC, Bhel, NBCC, Hindustan Copper, MMTC and RINL.Power sector financier PFC recently concluded its offer complying with the existing regulation where FIPB nod is mandatory. Other previous issues of companies such as SJVNL and NHPC also complied with the provisions to get clearance for inviting foreign funds.