The Reserve Bank of India issued fresh guidelines last week with respect to its Foreign Direct Investment (FDI) Policy. To pre-empt any move by corporates to issue hybrid instruments like optionally or partially convertible debentures, the RBI has elucidated that only fully convertible debentures into time-bound equity can be issued to foreign investors.

The RBI recognises partially and optionally convertible debentures as debt instruments. Existing partially or optionally convertible debentures can continue to be held till they mature, clarified the RBI. Foreign institutional investors (FIIs) can invest in non-convertible debentures or bonds issued by Indian firms subject to limits defined by the apex bank.

• USD 6 billion Expected from FDI in Real Estate

Meanwhile, FDI investment in real estate is expected to touch the USD 6 billion figure this year, and USD 10 billion in another 12 to 18 months from now, according to a report by Jones Lang LaSalle. This would bring FDI investment in real estate to reach a share of 26% in 2007-08, up from 16% received last year.

Residential properties have been preferred over commercial properties, according to the report, as returns from the investment are assured. Besides, exiting from these projects is relatively easier.

Commercial properties in tier I cities are also a favourite amongst foreign investors as rentals on these properties have appreciated by more than 100% in the last one and a half years.

Private equity deals in Indian real estate would account for USD 1.2 billion of the total foreign investment, primarily into Tier I markets of Delhi, Mumbai and Bangalore, which have a lower risk element.

However, as DLF ventures into Tier II markets, equity investors are encouraged to invest their capital in projects in these locations too.

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