The government has cleared $2 billion foreign investment into a trust fund promoted by Macquarie and State Bank of India (SBI). Although the proposed investment, which is the target size of the fund, will not be infused in one go, Macquarie-State Bank of India (MSIF) will continue to make the investment overtime.
At its last meeting on January 18, the Foreign Investment Promotion Board (FIPB) cleared the proposal with a provison that the foreign investors putting moneyinto the trust fund should be registered as foreign venture capital investor (FVCI) with the capital market regulator, Sebi, and the trusts would follow know your customer (KYC) norms .
The FIPB had, at one of its earlier meeting last year, deferred the proposal citing some complications. The complications arise since trusts have only beneficiaries and not owners, which makes it hard to say who owns a venture capital trust, especially if it has non-resident beneficiaries. The venture funds are floated as trusts to save on dividend distribution taxes, which have to be paid by a company.
In the present case, foreign institutions will invest through MSIF and Indian domestic institutions will invest through a domestic entity, SBI-Macquarie Infrastructure Trust (SMIT). The MSIF and SMIT will invest together into infrastructure projects in India.
In 2009, State Bank of India (SBI) and Macquarie Group Ltd (Macquarie) launched the Macquarie-SBI Infrastructure Fund (MSIF), which would invest in infrastructure projects in India. International investors have committed $887 million to MSIF alongside a direct investment commitment of $150 million by SBI, bringing the total capital raised to $1.037 billion. The MSIF is managed by the SBI and Macquarie joint venture with International Finance Corporation, a member of the World Bank Group, being a minority shareholder and cornerstone investor.