Flipkart has to cross another hurdle before acquiring Snapdeal. Here’s what it is

Flipkart will have to comply with all the norms of the Reserve Bank of India (RBI) before acquiring Snapdeal.

Flipkart will have to deal with the rules listed under the Foreign Exchange Management Act (FEMA) and will have to protect the interest of Snapdeal shareholders.

Flipkart Pvt Ltd, which is domiciled in Singapore, has entered an all-stock deal, estimated at $700 million-$1 billion. But issuance of shares by Flipkart Singapore to Indian shareholders of Snapdeal would need a specific permission from RBI.

ET reported RBI typically puts a question mark on cross-border transactions that result in residents owning shares of an overseas company that has stake in another Indian company. It views such flow of funds or securities as round-tripping though several such transactions are aimed at serving genuine business interests.

Meanwhile, Snapdeal's local shareholders will look for a stock swap.

"Such a stock swap will need RBI approval for Flipkart Singapore to acquire shares of an Indian company for consideration other than cash, and for the resident Indians to own shares of a foreign company (Flipkart Singapore), which may be governed by the ODI (overseas direct investment) guidelines,” Prem Rajani, managing partner at law firm Rajani Associates, told ET.

The Fema rule is an issue that Flipkart and Snapdeal will have to deal with to consummate the proposed deal.