India mulls new company to aid acquisition of overseas assets

Proposed Indian Overseas Investment Corp will loosely modelled on concept of sovereign wealth fund.

Written by PTI | New Delhi | Published: September 4, 2013 4:15:25 pm

The government is mulling setting up a new company,loosely modelled on the concept of a sovereign wealth fund,to finance the acquisition of natural resource assets abroad.

The proposed Indian Overseas Investment Corp Ltd (INOIC) will be wholly owned by the government and administered by the Ministry of Finance,officials said.

INOIC won’t be a sovereign wealth fund in the conventional sense,though it will invest in ownership of natural resource assets overseas. It will be a development finance institution with the mandate to provide equity and debt to public sector companies to secure natural resources abroad,they said.

A sovereign wealth fund is a state-owned entity that invests in real and financial assets. It is created by setting aside money from a country’s reserves. Some nations have set up sovereign wealth funds to diversify their revenue streams.

Officials said INOIC was being considered to accelerate the acquisition of oil and gas and coal assets abroad to create long-term resource security. Acquiring natural resource assets is crucial to revive growth in Asia’s third-biggest economy from a decade low.

Indian firms such as Oil & Natural Gas Corp (ONGC) compete with larger and financially stronger Chinese firms in the hunt for resources. Chinese companies have sewed up USD 8.8 billion of deals this year in Africa alone.

With limited domestic natural resources,India has no alternative but to look for such assets overseas.

Officials said the government is keen to accelerate infrastructure development and economic growth,which requires steps to be taken to ensure energy security in the form of ready access to resources such as oil and gas and coal.

In addition,access to fertilisers is needed to enhance farm productivity and augment food stocks.

INOIC,conceived as a non-operative holding company under administrative control of the Department of Economic Affairs in the Ministry of Finance,will provide funds for investing or acquiring strategic assets overseas to select PSUs.

The acquisition of strategic assets will reduce the exposure of Indian producers to volatility in prices of oil,urea and other critical raw material.

Officials said foreign exchange needed by INOIC will be acquired from the Reserve Bank of India through outright spot purchases or medium-term currency swaps.

Rupee funds required may be provided by the PSUs concerned,especially those with a surplus that are looking to acquire strategic assets abroad. No budgetary support is envisaged,unless circumstances are exceptional,they added.

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