Norms on overseas acquisitions by software cos. eased

BANGALORE: The Government has eased the norms for overseas acquisitions by domestic software companies by providing for automatic approval for acquisitions up to $100 million by Indian companies listed abroad.

Currently, the guidelines permit funding of such overseas acquisitions up to a maximum of 50 per cent out of the proceeds of either Global Depository Receipts (GDRs) or American Depository Receipts (ADRs). Now, up to 100 per cent of the ADR or GDR proceeds can be used for overseas acquisitions. 

The Government's decision to provide the automatic route approval for only acquisitions by software companies is aimed at providing more flexibility to these companies. The automatic approval facility will be restricted to only those companies, which have already floated ADRs and GDRs and whose track record has been reviewed, which are only two companies, Infosys Technologies Ltd. and Satyam Infoway. Those companies, which have not floated ADR/GDR issues, will be eligible to obtain a "one-time blanket approval" from a "special composite committee" by applying to the RBI. The committee will approve both the ADR/GDR float as well as the overseas investment. After obtaining the "one-time blanket approval", the company will be eligible for using the automatic facility.

Software companies seeking acquisitions abroad will not require the approval of the Special Committee for Overseas Investments or the Union Government for accessing the ADR or GDR route. Proposals involving acquisitions exceeding $100 million will be taken into consideration by the Special Composite Committee, the Ministry said. The Committee while examining the merits of the proposal will also take into account the confidentiality of the proposal and if necessary will provide flexibility for negotiations within certain parameters. 

Companies which launch either ADRs or GDRs specifically for such overseas takeovers are expected to cover the cost of acquisition through issue of adequate ADRs or GDRs. The ADRs or GDRs issued under the scheme will be by way of issue of fresh shares by a company, according to the new guidelines. The release said that full details of the transaction or acquisition will have to be reported to the RBI and the Finance Ministry within 30 days of completion of the deal.