FOCC downstream investments face regulatory hurdles

Foreign-owned and controlled companies (FOCCs) face difficulties in making downstream investments in India due to issues arising from foreign exchange rules. There is an ambiguity in the current rules, which is leading to interpretational issues and in some cases, the Reserve Bank of India (RBI) has taken a more conservative stance impacting the deals, two foreign exchange law experts familiar with the development said. The industry has already submitted multiple representations to RBI seeking clarity on many of these rules.

- Pavan Burugula

The issues cropping up mostly pertain to whether FOCCs can make deferred payments of consideration and whether they can subscribe to convertible options as a part of the investment. Additionally, FOCCs can only make investments in India through money gathered from their internal accruals or through funding received from their foreign parent. This essentially prevents FOCCs from making leveraged buyouts in India, the people cited above added.