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Corporate Gurantee to WOS

Jaideep (Service) (1368 Points)

02 February 2011

Dear all,

Can anybody tell me the formalities in regard to the coporate guarantee given to 100% wholly owned Foreign Subsidiary by an indian unlisted public company.

Views solicited urgently.

Regards- Jaideep Pandya

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6 Replies

rvsekar2000 (212 Points)
Replied 02 February 2011

Hello,

Guarantee on behalf of Wholly Owned Subsidiaries (WOSs)/Joint Ventures (JVs) abroad.

i. Presently, only promoter corporates are permitted to offer guarantees on behalf of their Wholly Owned Subsidiaries (WOSs)/Joint Ventures (JVs), under the Automatic Route and issue of personal, collateral and third party guarantees requires prior approval of Reserve Bank and is considered by RBI, on a case by case basis.

ii. The scope of guarantees covered under the Automatic Route has been enlarged. Indian entities are now permitted to offer any forms of guarantee – corporate or personal/ primary or collateral/ guarantee by the promoter company/ guarantee by group company, sister concern or associate company in India, provided:

a) All "financial commitments" including all forms of guarantees are within the overall prescribed ceiling for overseas investment of the Indian party i.e. currently within 400 per cent of the net worth of the investing company (Indian party).

b) No guarantee is 'open ended' i.e. the amount of the guarantee should be specified upfront, and

c) As in the case of corporate guarantees, all guarantees are required to be reported to RBI in form ODI..

iii. Guarantees issued by banks in India in favour of WOS/ JVs outside India are outside this ceiling and would be subject to prudential norms issued by RBI from time to time.

R.V.Seckar

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