17.9.13

INOIC


The government is setting up a company — India Overseas Investment Corporation (INOIC) — under the finance ministry on the lines of a sovereign wealth fund to lend financial muscle for securing access to overseas natural resources.
A concept note prepared by the ministry goes beyond the conventional reasons of acquiring energy assets to justify the need for INOIC. “Other key areas such as food security (also) requires access to fertilizers to augment food stocks as well as to enhance farm productivity,” the note said. With INOIC, India will join a select group of economies such as US, Russia, China, South Korea, Singapore, Malaysia, Brunei, Qatar and UAE that have pushed overseas acquisitions and business through such funds.
The seeds of INOIC were sowed at a meeting of PM’s principal secretary Pulok Chatterjee in March. Emphasizing the need to secure access to raw materials, “wherever they were available”, Chatterjee had asked for a blueprint of an overarching institutional mechanism for such investments.
INOIC will not, however, be India’s sovereign wealth fund in the “conventional sense”. It would be patterned like the government’s holding arm and registered with RBI as a non banking financial institution with a paid-up capital of Rs 10 crore. The company will raise funds through rupee bonds of 15-20 years with sovereign guarantee. State-run entities, banks and financial institutions will subscribe to these papers using their surplus funds.
Sovereign guarantee will allow coupon rate to be set marginally higher than government securities. This will make the papers attractive to investors. The papers can also be made part of SLR (statutory liquidity ratio, or minimum cash banks have to keep overnight) to help them subscribe.
INOIC will not borrow from RBI and will purchase or swap its rupee funds with foreign currency from the central bank at market rates. This will ensure a market-oriented mechanism and avoid management of temporary surplus forex funds. The formation of the company will follow changes in guidelines so that state entities don’t have to seek Public Investment Board’s approval if the quantum of overseas investment is within INOIC’s ambit. The company will act as a single window clearing and financing framework that will be faster and more responsive than the existing system involving multiple layers of approvals for overseas acquisitions. Essentially, it means ready cash for an entity acquiring assets abroad.

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