Bharat SainiLast Updated on February 27, 2017 by Bharat Saini
Non Resident Indian (NRI) entrepreneurs planning to invest money in India admire the vision of the Prime Minister Narendra Modi and have termed his decisions such as Make in India, Digital India, Swachh Bharat as excellent ideas; but are not satisfied with the implementation of its policies. They are fed up with the same process of filing applications and approaching different ministries for getting clearances. They expect that their investment should be treated on a par with Indian investments. They need well thought out policies and suggest that the solution to various issues lies in creation of Special Purpose Vehicles (SPVs) at Central and State government levels and such SPVs should possess all the clearances. They contend that it happened in China 20 years back. According to them interested investors should just buy the SPV and start the business. There should not be any need of seeking any further approvals.
In China a large number of offshore financial institutions have extended their businesses into the market. Professional and trust-oriented, Special Purpose Vehicle (SPV) techniques have become one of the main tools for establishing offshore wealth management. The key for offshore wealth management is the selection of jurisdiction, setup of SPV, construction of assets control relationships and implementation and arrangement for cross-border investments. In addition, domestic entrepreneurs for cross-border asset restructuring are using SPV techniques, return investment, red chips listings, family inheritances, tax planning and international trade more often.
In China one of the common usages of SPV in cross-border investments is in the common procedures in SPV investments. People’s Republic of China’s State Administration of Foreign Exchange (SAFE) provides an extended interpretation on SPV in document No. 37 that has further relaxed control over foreign exchange. This document advocates the liberalization of capital accounts and allows repatriation of funds by domestic enterprises to facilitate the expansion of cross-border business and scale of business. The sources of SPV assets or equities include overseas and domestic assets or equities held by domestic residents. The process of asset acquisitions also allows for controlled relationships between domestic and overseas assets that is established via SPV and WFOE (Wholly Foreign Owned Enterprises). In contrast, transactions such as financing, equity, and asset merger and acquisition are performed by SPVs established overseas. Both the local legal conditions of the target company and the taxation for mergers and acquisitions are taken into consideration.
Conceptually, SPVs are mostly formed to raise funds from the market. An SPV is formed for a single, well-defined and narrow purpose and is, primarily, a business association of persons or entities eligible to participate in the association. The biggest advantage of forming is SPV is that it helps in separating the risk and freeing up the capital. India can also devise some sort of extended or modified interpretation of SPV to attract foreign investment.
