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Ambarish Mukherjee

New Delhi , March 12

IN line with the provisions of the new Foreign Exchange Management Act (FEMA), the Government has started restricting the maximum amount of dividend payable by an Indian company to its foreign investor going in for preference shares.

During January and February, the Government insisted on the limit on the maximum dividend payable to the foreign investor participating in the preference shares of Coromandel Electric Company Ltd and Asianet Satellite Communications Ltd. These two companies had approached the Foreign Investment Promotion Board (FIPB) for approval of investments by non-resident Indians.

In both cases, the Department of Economic Affairs (DEA) approved the issue of preference shares on condition that the rate of dividend payable on the preference shares issued by these two companies should not exceed 300 basis points over State Bank of India's prime lending rate, a condition stipulated in FEMA.

In the case of Coromandel Electric, the company had approached the FIPB seeking permission to issue 508 cumulative redeemable participating preference shares of Rs 10,000 each to a NRI investor, Ms Uma Mynamati, bearing a rate of 18 per cent. The Foreign Investment Unit of the DEA informed the FIPB that 18 per cent was on "much higher side" following which the FIPB approved the proposal on condition that the rate of dividend on this particular category of preference shares "should be subject to 300 basis points over SBI PLR."

In the case of Asianet Satellite, the company had approached the FIPB with a proposal to issue 30-lakh redeemable non-cumulative preference shares (without conversion option) of Rs 10 each to NRI investor, Mr Satish Raheja, on repatriation basis for a maximum period of 20 years that could be redeemed with mutual consent after five years, bearing a rate of five per cent.

In this case also, the DEA communicated to the FIPB that it had "no objection to the proposed issue of preference shares provided the rate will not exceed the current SBI prime lending rate plus 300 basis points." However, the FIPB has not yet cleared the proposal from Asianet Satellite and is awaiting the opinion of the Ministry of Information and Broadcasting. The FIPB would take up Asianet's proposal for consideration next week, officials said.

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FEMA effect: Govt limits dividend payable to foreign investors on preference shares

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