Govt says no to Chambal Agri's JV plan in S'pore

NEW DELHI: Amidst increased overseas investments by Indian companies, the finance ministry has rejected a proposal of Chambal Agritech Ltd, over concerns of inflated valuations and externalisation of Indian equity without any inward inflow.
In this case, which evoked clash of opinion between the ministries of finance and industries, the finance ministry pointed out that in the absence of capital account convertibility, the proposal amounted to round tripping which is not in line with the present policy regime.
The ministry also observed that since the present overseas direct investment policy does not distinguish between countries, the proposal would set a precedence which can be exploited to avoid tax incidence by routing such investments by Indian companies in Mauritius and ploughing back the investments to India.
The proposal involved establishment of a holding company in Singapore as a 50:50 JV between Chambal Fertilisers & Chemicals and Zuari Investments Ltd. Thereafter this holding company would have acquired 51% stake in Technico Pty Ltd, an Australian company which currently holds 50% equity in Chambal Agritech.
Ultimately it would have resulted in Chambal Agritech, engaged in mass multiplication of high yielding potato seeds, becoming 100% subsidiary of Technico.
This would have involved four way transaction with CFCL, a publicly listed company, using its internal accruals to infuse Australian $ 14.6 mn in the holding company along with transfer of its 50% stake in Chambal Agritech amounting to A$ 4 mn in consideration of convertible preference shares.
Subsequently the holding company would have invested A$ 12 mn to acquire 31.58% stake in Technico along with transfer its 50% stake in Chambal Agritech in consideration of 10.53% stake in Technico. Finally the holding company would have acquired another 8.89% stake in Technico.
The finance ministry pointed out that it entails, “overvaluation of Technico, as the existing investors are selling at A$ 1.32 per share, whereas fresh equity in the company was being sought at A$ 1.76 per share.�
It also observed that the proposal, “amounts to the Indian funds being routed through Singapore and Australia for investments in India itself. It amounts to ‘round tripping'' of funds and is not permissible.�
The ministry of industry had defended the proposal on the grounds that, “differential pricing of shares for fresh issue and for acquisition of existing shares from minority shareholders would be subject to Australian laws.