The government has approved a draft policy on equity investment abroad byresidents/firms, which caters to the needs of the business community, andaims to improve the ease of doing business, promote exports, facilitateresident companies in raising capital from abroad.
Finance Minister Dr. Abdul Hafeez Shaikh presided over a meeting of theEconomic Coordination Committee (ECC), whereby the decision to approve thenew investment policy was made, as per recommendations of the State Bank ofPakistan.——————————
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It will allow businesses, residents, and firms to hold foreign investmentson the premise that this will help in improving local exports, and attractsventure capital from other countries.
At the meeting, SBP reps reminded the ECC that entities such as thePakistan Business Council, software exporters, venture capital firms, andlocal players from the start-up culture, have repeatedly requestedrevisions of the existing policy as per international standards.
In their summary to the ECC, the central bank explained the change ininvestment regulations was imperative for allowing local players to engagewith international firms abroad for boosting exports without lengthyapproval proceedings as per SBP regulations.
Currently, investment proposals amounting to $10 million are evaluated bythe central bank. For equity holdings surpassing $10m, the proposalsattached with them have to be evaluated by the SBP, who in turn forwardtheir reports to the Ministry of Finance for the ECC to give the final nod.
This is genuinely a lengthy and dismal affair, for it wastes too much timeand prior valuations for businesses abroad can easily take financial hitsif not dealt with in time.
According to the SBP report, startups and venture capitalists suggest localresidents should be allowed to raise capital by setting up shops ininternational markets. They’ve also requested permissions that allow stateresidents to purchase shares of companies abroad, at the expense of theirown time and money, without going through a formal review from thegovernment.
In lieu of underlined requests and queries, the new investment policy hasbeen approved, as per the terms and conditions of the finance ministry.What is the new policy?
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As per the new investment policy, the first category allows exporters toremit up to 10 percent of their average annual export earnings of the lastthree calendar years, or $100,000, whichever is higher, to set up shopwithout asking the central bank for approval. This will benefitexport-oriented companies to set up branches abroad and attract exportorders, as international buyers prefer dealing with branches andrepresentative offices in their countries.
The policy’s second category allows local players to set up holdingcompanies overseas for raising capital for resident companies, especiallyventure capital, fin-techs and startup firms.
The SBP proposed introducing the concept of holding company (Holdco) andoperating company (Opco) in the policy which allows a resident Opco toremit funds of up to $10,000 to incorporate a Holdco abroad, withoutseeking permission from the central bank.
Once a Holdco is operational, the existing shareholders of Opco can swapshares to mirror the shareholding of Opco in Holdco. Subsequently, theinvestment can be raised from abroad by Opco through Holdco, and steerforeign investment across Pakistan.
The third category is for investments abroad by resident individuals.Currently, resident individuals can invest in listed securities abroadafter being okayed by the SBP. With the new policy, the authorized dealersor banks could remit up to $25,000 in a calendar year on behalf of residentindividuals for buying shares in listed securities abroad, after the bankapproves.
The new policy also allows general permission to resident employees ofsubsidiaries of foreign companies in Pakistan to participate in their shareoption plans subject to the remittance of a maximum amount of $50,000 in acalendar year.
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