The Hindu Business Line : FIPB rejects ICP plan to buy 2i Capital stake in Umang Realtech

The Foreign Investment Promotion Board (FIPB) has turned down a proposal by ICP Investments (Mauritius) to buy-out 2i Capital’s 40 per cent holding in Umang Realtech (a company where Uppal Housing holds the balance stake) citing a three year lock-in period clause for construction development projects under FDI (foreign direct investment) norms.

2i Capital Asset Management Company, incorporated in Mauritius, had executed a joint venture agreement with Uppal Housing Ltd (UHL) — under which the two sides agreed to infuse investments into Umang Realtech, which is into the business of construction development projects. Following the pact, 2i Capital executed a share subscription agreement with UHL to pick up stake in the ratio of 40:60 in Umang Realtech. In the process, 2i Capital subscribed to shares for an amount of $5 million.

According to sources, the joint venture between the two companies was terminated in March 2008, and 2i Capital was looking to transfer its 1.97 crore shares of Umang Realtech, to the new investor ICP. Hence the Government’s approval was sought for transfer of these shares from 2i Capital to ICP Investments (Mauritius) keeping in view that “no repatriation of funds was involved for the transfer and that the project undertaken by the company would continue to comply with the requirements of Press Note 2 (2005) series that deals with FDI in townships, housing, built up infrastructure and construction development projects”.

According to the FDI policy in the sector, original investments cannot be repatriated before a period of three years, from the completion of minimum capitalisation norms. However, the investor could be permitted to exit earlier with the prior approval of the Government through the FIPB route.

Sources said that in addition to taking over the stake, ICP Investments was also willing to take over the commitment of 2i Capital including investments of Rs 260-281 crore, over a period of three years.

During the deliberation, the Foreign Investment Unit of the Department of Economic Affairs took the view that the proposal would not result in repatriation of funds, though the exit sought was within a year. However, the board took the view that similar proposals had been turned down in the past as they amounted to repatriation of FDI before lock-in period. Even though the FDI norms have an enabling clause to permit such an exit, it has not been allowed so far, the board noted adding that the lock-in period was applicable to both FDI and the company.

When contacted, Mr Ajay Mangal, Director (Finance) of Uppal, declined to comment on the proposal but said that the company would study the rejection and take necessary action.

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