New Delhi: The government is reviewing norms for the use of several hybrid instruments for foreign investors after finding examples of several Chinese companies trying to avoid rules about foreign direct investment (FDI) in Indian entities.
In 2020, after the Covid outbreak – when the role of China in the spread of the virus was below the lens – the government had decided to end the automatic approval mechanism for countries that have land borders with India.
This step crashes into Chinese investors because all new investments need to be cleaned by the government.
While the trigger is an investment by Tencent Giant Chinese funding in a social media company earlier this year, with dialir funds through Europe, several companies, such as Chinese Conglomerates of Fosun, who have investments in this country, also consider pumping money using this route.
To get around the supervision problem, especially after the border tensions in Ladakh, some Chinese companies are looking at instruments such as stock preferences that can be redeemed optionally or other optional conversion instruments to provide funds as debt instruments.
A corporate lawyer said that there are examples in which Chinese investors are looking for rights enjoyed by shareholders, while giving debts.
These investors are based on advice from local legal clothing, avoiding mandatory conversion instruments because they are classified as equity by the RBI.
As a result, the government has now started a discussion to see whether the instrument that can be converted optionally can face a larger inspection.
“We see several options to ensure that there is no misuse of the provisions by anyone.
The discussion is ongoing but there is no decision taken,” said the government’s source to TOI.
Other sources say that while conversion instruments are optionally classified as debt at maturity, something provided in the contract, investors must look for government permits.
“It’s not as if they will invest and it will still be not considered, but there is a need to clamp it earlier,” the official source of the opinion.
In the past, major investments have flowed into new economic technology and space but there is Chinese equity in the real estate and pharmaceutical sector, which has been hit by the sidewalk.
Chinese investment flows through the hybrid route under the lens
