The Hindu Business Line : Govt plans to allow 49% foreign holding in PSU refineries

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Govt plans to allow 49% foreign holding in PSU refineries

Moumita Bakshi Chatterjee

New Delhi, Nov. 2 The Government proposes to allow 49 per cent foreign investment in public sector oil refineries, in commodity exchanges, and in Credit Information Companies (CIC). In the civil aviation sector, foreign direct investment up to 74 per cent in non-scheduled airlines, chartered airlines and cargo airlines is likely to be allowed.

These proposals have been finalised as part of the long-pending Foreign Direct Investment (FDI) policy review and is likely to be presented to the Union Cabinet in the coming weeks.

In the petroleum and natural gas sector, the policy proposes to delete the condition of compulsory divestment of up to 26 per cent equity within five years for foreign companies trading and marketing petroleum products.

In addition, it has proposed an increase in the foreign equity cap from 26 per cent to 49 per cent with prior FIPB approval in petroleum refining by public sector undertakings. However, the proposed policy does not envisage disinvestment or dilution of stake in existing PSUs.

The revised policy proposes to allow foreign investment of up to 49 per cent with prior Government approval in CICs, and a composite ceiling of 49 per cent on foreign investment (FDI and FII) in commodity exchanges.

It proposes to permit FII investment up to 24 per cent only for those CICs that are listed. The FII investment, which would be within the overall limit of 49 per cent foreign investment, would be subject to conditions that include capping the holding (direct and indirect) of a single entity at 10 per cent, and not allowing the FIIs a representation on the Board of Directors.

In addition, it has stipulated that any acquisition of over one per cent would have to be reported to the RBI. Sources said that FDI would have to comply with the Credit Information Companies (Regulation) Act, 2005.

In commodity exchanges

For commodity exchanges, a composite ceiling of 49 per cent on foreign investment has been proposed, with FII investment limited to 24 per cent.

However, FIIs are likely to have a greater say in commodity exchange than the stock exchange as unlike the stock exchange where FII investment is allowed only through the secondary market, the upcoming policy would allow FIIs to invest or purchase either through private placement or primary or secondary market, in commodities exchange.

FDI in commodity exchanges would be allowed with specific prior approval of FIPB. However, the policy bars FIIs from getting a representation on the board of directors of the commodity exchange.

“Foreign investors, including persons acting in concert, cannot hold more than 10 per cent of the equity in these companies,” sources said. SEBI has currently mandated that no single investor can hold more than five per cent stake in stock exchange, and the same applies to domestic investors too.

The policy has also clarified that investments by registered FIIs under the portfolio investment scheme would be distinct from FDI and would be outside the purview of conditions specified in Press Note 2 (2005) in case of construction development projects.

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