Floridienne is a diversified Belgian industrial group that ranks among the European or World leaders in several market niches or niche markets. The Group operates in eight business lines divided among three Divisions: Gourmet Food, Life Sciences, and Chemicals. Floridienne generally holds majority positions in its activities. This enables the group to invest actively, in the long term, in the implementation of the strategies defined for each of its Business Units. Floridienne is also on the Brussels Euronext Stock Exchange, giving it international visibility. Floridienne[V1] has about €450m turnovers. Their subsidiary Enzybel set up a subsidiary recently are thinking of setting up manufacturing/ processing also for papain – an enzyme from papaya used in the food industry. Mr. Thibaut Hoffman, CFO, Floridienne Group lead the CFO session along with Praveen Singhal – CFO, Maier+Vidorno, How to oversee the financing situation of your Indian daughter company?
Why go International?
If the company looks at growth, you have to go international because the markets are very dynamic today. India is a key country in terms of abundant raw materials, thus having a subsidiary in India would allow the company to exploit the niche market.
When and Why Invest in India?
Sourcing raw materials: India as a market is well located in Asia to serve a key market. Businesses in India can set up their production facility not for the raw materials but also for the talent pool available.
Finding the right partner: Building up a local production site, also at the same time transforming the given cultural differences. Despite the geographical distance of your holding company, having a local partner is important for doing business in India. The local partner should have the skin to invest in the game.
Finding the right support: The firms that will help you to transform your stunt into a business success in India is important. The pool of talent in India is huge so you will require that the right kind of people speak to you. Also, for the long term, you have to build trust and rapport with them. Having the right companies which can navigate you through India is crucial.
Patience and Luck are the keywords when you talk about India.
How doing business in India is different from doing it in other parts of the world?
In the last 6 years, India has climbed up 79 places to 63rd position in ease of doing business ranking of the world. The government has also started a National Investment Promotion and Facilitation Agency called Invest India to help foreign companies set up their business in India. To make exports more efficient the government also provides subsidies on export financing. But it is incumbent for the business partner to spend time with the right financial partner who can assess the range of options available at your disposal.
Reducing the administrative burden:
Not only in India but even across the world a lot of red tapes prevail. The government should reduce the administrative process of obtaining many approvals which is a complex and tedious process.
Government offers subsidies to foreign companies if they are making significant investments in India. This will simplify the process of establishing a business in India. Also finding the right partner in India can prove to be a boon. Because at the end of the day the process is going to be much easier, internally and externally.
Regulations and reforms:
They are on the banking and financial fronts with significant liberalizations over the years. If today, you are an overseas investor and you would like to make an equity investment except for a handful of restrictive and sensitive sectors you don’t need any government approval to go ahead. The process is very much streamlined.
Get your financial model right:
External commercial borrowing for the Indian counterpart is if overseas investor wants to extend a loan to its Indian subsidiary. There are so many avenues to raise financing locally in Indian rupees in the local market for working capital or long-term debt. Not only this, there are domestic banks and multinational banks in India which will assist businesses in these transactions. Thus, getting the financial model right is equally important for doing business in India.
The three key financing lines for investment in India are:
- Infusing initial share capital raised through rounds of funding
- Secondly raising a loan from the partnering bank in India.
- Third is in terms of grants and subsidies as the investment which we are doing in India is for the benefit of the local people.
Funding of Indian Subsidiaries:
Investments through Shares and Convertible Instruments:
The investment in the aforesaid instruments is treated as a capital investment by the foreign investment law of India. Such capital investment is subject to certain conditions including:
- Sectorial cap as mandated by local regulations
- Pricing compliance
- a specified time for the allotment of such instruments;
- reporting such capital investment within a specified timeline
External Commercial borrowings:
Debts raised in foreign currency by an Indian company (from internationally recognized sources) fall within the purview of the definition of ECBs. They are regulated by the Ministry of Finance and the Reserve Bank of India. ECB can be foreign currency denominated and INR denominated also.
A foreign Equity holder is:
- Direct Foreign Equity Holder with minimum 25% direct equity holding in the borrowing
- Indirect equity holder with a minimum indirect holding of 51%.
- Group: A company with a common overseas parent.
All Indian Companies and LLPs are eligible to receive FDI.
By way of Business Arrangements:
Extending the credit terms for goods/services supplied by parent / overseas company to India subsidiary company. Rendering of advance by parent / overseas company for the future provision of services or supply of goods by the subsidiary company.
Domestic Borrowing with Parent Support/Corporate guarantee:
Foreign investors can facilitate the domestic borrowings from the local banks in local Indian currency for an Indian company by:
- Providing the corporate guarantee to the bankers
- By issuing the standby letter of credit (SBLC) and the local credit limits will be set up against such SBLC
- Against the local assets of the Indian companies, if available.
Dividend option: When a foreign company sets up a wholly-owned subsidiary (WHOS) in India, the dividend received by shareholders from the Indian company is not taxable but the WHOS has to pay dividend distribution tax.
Buyback of shares: Foreign Company could return the shares that it holds in its Indian subsidiary and in return the Indian company would pay the consideration at a pre-determined price.
Royalties: If the Indian company is using a technology patented by the parent foreign company then the Indian company is liable to pay a royalty to the foreign company.
Payment for services: If the Indian company is using the resources of the foreign company then the Indian Company is liable to pay service fees for the resources used by the foreign company.
M+V offers support to foreign companies looking to enter the Indian market or expand their existing business in India. For more information, get in touch with us on our email id firstname.lastname@example.org.
We would be delighted to engage in a one-on-one conversation and discuss some cases where we have supported our clients which might help you to deal with your organizational issue. If you want to know more about the session please drop in your detail to the below email id email@example.com. We will send you the recording of the webinar.