SPV BY FII(Foreign institution investor)

SPVs BY FII
SPV route is also resorted to by foreign companies to enter into
areas of business in India which are prohibited for them under
automatic route. Our foreign investment policy does not allow
foreign investors to invest in certain business activities in India
without approval from FIPB (Foreign Investment Promotion
Board). As a result the foreign investors take SPV route to
reach the Indian markets. As seen in case of Vishal Retail Limited,
which transferred all its fixed assets to a special purpose vehicle
(SPV) that is predominantly owned by the foreign private equity
firm – Texas Pacific Group (TPG). Once the assets are parked
in the SPV, TPG will run the entity as agreed under the MOU
to be signed between the two companies.
As per current negotiations, TPG has set up a wholesale company
called TPG Wholesale Pvt. Ltd, while another company Airplaza
Retail Holdings Pvt. Ltd, owned by the Shriram Group, has
formed a retail company to takeover the retail business of Vishal
Retail Ltd. Thus under this set up two SPVs were formed, one
as a wholesale company owned by TPG and another as a retail
company owned by an Indian investor.
The assets and liabilities of Vishal have been transferred to
the SPV owned by TPG on a slump sale basis, and Vishal
Retail has ceased to exist after the deal. The retail stores which
were run by Vishal along with all other assets, which will
then be owned by the TPG- founded wholesale company, will
be leased to the retail company.
Al l thi s a r r angement wa s done be c aus e for e ign di r e c t
investment of up to 51 percent is allowed in single-brand retail
and up to 100 percent in wholesale business. Thus what TPG
could not do directly, it will get it done by an indirect way in
the name of Strategic investment and Vishal Retail will be
bailed out of its financial mess.