2 min readNew DelhiMar 12, 2012 12:31 AM IST
First published on: Mar 12, 2012 at 12:31 AM IST
While tax havens such as Mauritius and Cayman Islands have long been the gateway for foreign investors coming into the country,India Inc investing abroad are also increasingly using these off-shore financial centres for routing their overseas investments.
With the result that Singapore,Mauritius and the Netherlands are clearly the top three countries drawing overseas investments from India,even though the investments are finally routed to Western Europe,North America or Africa.
A case in point is one of the largest overseas acquisitions by an Indian infrastructure entity,when infrastructure major GVK Power,part of the GVK Group,acquired Australias Hancock Coal for 1.26 billion in September 2011. Here,the investment was routed through Singapore and the transaction was done by GVK Coal Developers Singapore Pte Limited,a step down subsidiary of group firm GVK Natural Resources.
The trend has now picked up sharply,with Singapore and Mauritius cementing their spot on the top of the list of overseas investment by Indian firms in the last decade-and-a-half. In 2005,Indian companies were allowed to float special purpose vehicles SPVs in international capital markets to finance acquisitions abroad facilitating the use of leveraged buyouts. Since then,SPVs set up in offshore financial centres,such as Mauritius,Singapore and the Netherlands and the Cayman Islands,have been mainly used as conduits by Indian firms to mobilise funds and invest in third countries,mainly keeping in view the business and legal consideration,taxation advantages and easier access to financial resources in the countries.
This comes at a time when the direction of outward FDI shows that it is getting more diversified across countries,with Indian firms increasing the focus on targets in developed countries. Diverting from the past trend visible in the pre-1990s when Indian companies predominantly invested in countries where there was little technological competition,the more recent trend shows that Indian overseas investment is increasingly flowing to developed economies,partly reflecting growing confidence of the Indian corporates and availability of overseas assets at competitive rates.
Big acquisitions by companies such as the Tatas have already propelled Tata Group companies as the biggest manufacturer and employment provider in the UK.
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