The month of February 2011 saw a massive single FDI deal struck between Reliance Industries (RIL) and UK's BP Plc. According to the deal, BP will buy 30 per cent stake in RIL's 23 oil and gas blocks including KG-D6 gas fields off the east coast for $7.2 billion (approx Rs 32,760 crore). RIL and BP, on 21 February 2011, signed relationship framework and transactional agreements to this effect.

Further, BP is likely to pay $1.8 billion (approx Rs 8,190 crore) for exploration success that results in development of commercial discoveries. The two firms will form a 50:50 JV for sourcing and marketing of gas. The JV will also work for the creation of infrastructure for receiving, transporting and marketing of natural gas in India. The 23 oil and gas blocks together cover approximately 2,70,000 sq km. RIL will continue to be the operator of the blocks. The transaction is subject to Indian regulatory approvals and other customary conditions.

FIPB clearances

During the month, the Union Ministry of Finance on recommendations of the FIPB approved 19 FDI proposals worth Rs 1,358 crore. The major chunk of the approved FDI during the month was accounted by Shriram Capital’s Rs 1,180 crore plan to induct foreign equity in an investing company. Further, the ministry also cleared a Rs 45.5-crore proposal of Reliance Broadcast Network seeking to induct investment by foreign institutional investors and non-resident Indians, among others, up to the limit of 20 per cent of the capital of the company. The company is engaged in FM Radio Broadcasting.

A Rs 55-crore proposal of INX Media was also given a go-ahead.

In all, the ministry rejected nine proposals and deferred decision on 21 proposals including that of Essar Capital Holdings (India).

The FIPB has referred three massive investment proposals from Reckitt Benckiser, Hero Investments and the GMR Group totaling Rs 9,720 crore, to the CCEA for clearance.

The earlier restriction issued as a part of the consolidated FDI policy held that only equity shares which are fully, compulsorily and mandatorily convertible preference shares, with no in-built options would qualify as eligible instruments for FDI. Equity instruments with in-built options will be considered as debt and have to comply with the external commercial borrowing guidelines issued by the RBI.

Other developments

Pharma M&As may happen only through FIPB route The DIPP has agreed to the Union Ministry of Health’s proposal to subject Indian pharma companies’ mergers and acquisitions (M&A) to surveillance. DIPP has sent a note to this effect to the Department of Economic Affairs under the Union Ministry of Finance.

The move has come in the wake of recent takeovers of Indian pharma companies by foreign firms. The Union Ministry of Health opines that this could affect the government’s efforts at making generic versions of branded drugs available at affordable prices. Even the Indian Drug Manufacturers Association and Indian Pharmaceutical Alliance, the pharma companies have raised similar concerns. In case the proposal gets through, foreign firms will have to secure prior approval of the FIPB before executing such mergers.

However, setting up of greenfield projects in this sector with up to 100 per cent FDI, without caps, could continue to be on the automatic route. As per the present policy, FDI of up to 100 per cent is permitted in the pharmaceutical sector under the automatic route.