Reliance Infrastructure is planning to set up a joint venture with China?s road developer Jiangsu Provincial Transportation Engineering Group Company (JTEG). JTEG will hold 26% stake in the JV company and the balance will be with Reliance Infrastructure.
The Chinese firm will bring in a foreign direct investment (FDI) of upto Rs 150 crore as equity in the JV. The money will be spent on implementing a Rs 1,725-crore highway project in Maharashtra, which was awarded to the consortium by National Highways Authority of India in March this year.
However, the plan can hit a roadblock with the Foreign Investment Promotion Board (FIPB) as the two firms already have an infrastructure JV in India. According to Press Note 1 of 2005, every foreign firm has to seek an FIPB nod before investing in a company that competes with the an existing JV. The approval is given based on various considerations including a no-objection certificate from partners in the existing JV.
A negative response from FIPB will also halt JTEG plans to increase its presence in India?s infrastructure sector. Besides, Reliance Infrastructure, JTEG is planning a JV with Ramky Infrastructure .
JTEG holds 26% in an special purpose vehicle named JR Toll Private Ltd, floated with Reliance Infrastructure and AAA Communications Private to execute a Rs 590-crore highway expansion project on the Jaipur-Reengus stretch. The Chinese firm had brought the money through the automatic route.
But this time around, a prior FIPB approval is required as the proposed investment attracts provisions of PN1 of 2005. ?We have applied for FIPB nod and are hopeful of getting it soon,? a senior official of Reliance Infrastructure told FE. The official said that AAA Communications and JR Toll Road Private Ltd have accorded their approvals for the fresh FDI, refusing to reveal the proposed FDI figure. However, going by the debt-equity ratio of infrastructure projects, JTEG would bring in upto Rs 150 crore. The debt-equity ratio of infra projects is 70:30. An email to Reliance Infrastructure did not elicit any response.
In order to dispel any fear of undue competition, the two partners are also considering to add a clause on ;conflict of interest.?
This will safeguard the interest of stakeholders in the event of one partner setting up another JV or a subsidiary in the same field of economic activity.