Preparing to approve China's investment in startup companies

Posted on 10th Oct 2020 by rohit kumar

The central government may approve many startups and technology deals involving Chinese investors. According to sources, the government is considering giving permission in those cases in which Chinese investors are being given less than 10 percent stake in a domestic company. A government official with knowledge of the entire matter said, 'Most of such applications are currently under consideration and some questions and clarifications have been raised before the representatives of the companies. The government may permit in the next few weeks after getting security clearance from the Ministry of Home Affairs.

 

 

If the government takes this step, many startup companies struggling with cash shortage can get relief. Their investment applications are under consideration after a change in guidelines relating to Foreign Direct Investment (FDI) in respect of Chinese companies intending to invest in India. Since April, about 100 applications from Chinese investors have been under consideration in various departments. "Most of these applications are from those areas which are not considered sensitive for internal security," the official said. Not only startups, but Chinese companies have also shown interest in investment in automobile sectors. The applications of two well-known vehicle manufacturers are also on this list. These two companies submitted applications to the government in August, which are currently under consideration.

 

 

The official said that the government does not want to stop any investment in the country, but the interests of Indian promoters and the quality of investment are reviewed to check. The official said that the cases in which no more than 10 percent stake in Indian companies will be bought are being considered because Chinese companies will not be able to take control of Indian companies in them. Atul Pandey, partner at Khaitan & Co, said, "The purpose of bringing Press Note 3 is to prevent Chinese companies from taking control of various Indian companies in the event of Covid-19 slipping. Since the Chinese companies will not be able to take control of Indian units by holding less than 10 percent stake, the government can approve investment requests in such cases.

 

 

Sources said that the department concerned is evaluating each company and the previous investments made by them.

 

 

For example, Zomato is one of the startup companies that is having difficulty in investing $ 100 million in the second phase from Alibaba's financial arm Ant Financial. Ant Financial bought a 14.7 percent stake in Zomato in 2018. In November of the same year, it increased its stake to 23 percent. Such cases are somewhat complicated. For example, Ant has a large stake in Zomato. So according to the current definitions of Beneficial Ownership, they already have control over Zomato. On this, an expert said that in such a situation, there will be no significant difference from getting a new investment from Ant. The government has made it clear that the new FDI guidelines will apply only to new investment proposals and old investments will not be in its favor.