The Hindu Business Line : `Go for optimal way of funding overseas buys'

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Mumbai Jan. 19 Indian companies bidding for overseas acquisition have been told to work out the most optimal method of funding their acquisitions.

According to Ms Shyamala Gopinath, RBI Deputy Governor, funding of these acquisitions will have implications for the domestic companies' balance sheets and external debt profile, depending on the source of funding.

The Deputy Governor's advice assumes significance in the context of several Indian companies, including Tata, Essar, Videocon and others, going for overseas acquisition.

Addressing a conference on cross-border acquisition by Indian companies organised by the Bombay Chamber of Commerce and Industry here on Friday, Ms Gopinath said in the case of investments financed through debt in the books of the domestic entity and against guarantees issued by it, it could involve a full or partial recourse to the Indian entity. In case there is recourse to the company, it is a direct liability of the company to that extent, she said.

So far, Ms Gopinath said, Indian companies, in general, appear to have funded overseas acquisitions in such a way to reduce the risk on the domestic balance sheet.

Responding to queries from corporates seeking clarifications on guidelines regarding remittance of funds by Indian companies for specific purposes, such as buying brands and granting loans to step-down subsidiaries, she said RBI was prepared to look into these issues.

Reporting format

Ms Gopinath said the central bank is working on a simplified system of reporting of funds remittance to overseas by Indian corporates.

With corporates adopting innovative funding structures for acquisitions and for other business overseas, the RBI feels that the present system needs to be rationalised.

Ms Gopinath said that the central bank is working on revising the existing reporting format in consultation with leading corporates. The first objective of this exercise is to simplify and rationalise the existing format, and to make them e-enabled, she added.

Corporates have to report two types of forex remittances — specific and annual.