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Curbs lifted on NRI, OCB investments in unlisted companies

The government today decided to permit non-resident Indians, persons of Indian origin and overseas corporate bodies to invest in unlisted companies under the portfolio investment scheme.

This will be in conformity with the norms and approval procedures applicable to portfolio investments in listed companies under the scheme.

Portfolio investments in unlisted companies by NRIs, PIOs and OCBs would be subjected to individual and aggregate investment limits applicable to investments in listed companies.

According to the new guidelines, investment limited by a single NRI, PIO, OCB (owned by such persons to the extent of at least 60 per cent) will be subjected to a ceiling of five per cent of the paid-up equity capital of the investee company.

The aggregate investment limit for all NRIs, PIOs and OCBs in an unlisted company will be subject to a ceiling of ten per cent of the paid-up equity capital. The aggregate investment limit may be enhanced upto 24 per cent subject to the general body resolution by the company.

Presently, NRIs, PIOs and OCBs are permitted to invest only in listed securities of the Indian companies through secondary markets under the existing portfolio investment scheme subject to the individual and aggregate investment limits.

Market sources said the move is likely to bring in fresh finance into the sanctions-hit economy. Alliance Capital India's chief investment officer Samir Arora said that most FII levels in good Indian stocks have reached the peak level of 30 per cent and what is left in the market does not have any good valuations. This is the reason why FII interest in the Indian market is waning. ''How do you bring them back? Offer them new goodies,'' he said.

The FII overdrive on the bourses during June has reversed the fund outflow, sources pointed out. According to the figures of the Securities and Exchange Board of India, FIIs' funds inflow was Rs 9.04 billion as compared to Rs 7.61 billion in June 1997.

Credit First Boston's managing director K K Bharat said that recent confidence-boosting measures like Prevention of Money Laundering Bill and Foreign Exchange Management Bill have held out promise of transparency in the stock market. This will attract NRIs, he added.

This is where the new incentive acquires significance, sources said. Apparently, several unlisted companies hold promise as many of them are wealthy holding companies of leading corporates. One example is Tata Sons.

Morgan Stanley India's director Akash Prash said that NRIs are unhappy over the below-par performance of leading companies in all sectors, barring a few. ''They are looking for fresh opportunities. If a company holds out promise, they will invest even if it is unlisted,'' he said.

There are some attendant attractions. Unlike listed companies, unlisted companies need not take decisions on composition of board of directors in annual general meetings and extraordinary general meetings. Shareholders' approval for finance deployment is also not mandatory.

Sources also pointed out that inflow of NRIs' fund into unlisted companies might offer a welcome contrast to the Indian corporate world's devious ways of compromising on shareholders' interest. NRI investors are bound to have a major say in key decisions. This will be mutually beneficial, they added.

Nikhil Faleiro in Bombay with inputs from UNI