RBI: Pricing of partly paid shrs for FDI, FPI to be set upfront
Mumbai: The Reserve Bank of India today said partly-paid equity shares and warrants issued by Indian companies will now be eligible instruments for foreign direct investment and foreign portfolio investment.
Till now, only equity shares and compulsorily and mandatorily convertible preference shares and debentures were recognised as FDI-compliant instruments. Equity shares or compulsorily and mandatorily convertible preference shares and debentures containing an optionality clause but without any option or right to exit at an assured price too were recognised FDI compliant.
The RBI today said pricing of the partly-paid shares will be determined upfront, with 25% of the total consideration amount, including any share premium, to be received upfront.
“The balance consideration towards fully paid equity shares shall be received within a period of 12 months,” the central bank said.
The RBI said the time period for receiving the balance consideration within 12 months will not be insisted upon if the issue size was greater than 5 bln rupees and the issuer complied with the Securities and Exchange Board of India’s regulations regarding monitoring agency.
In the case of an unlisted company, the balance consideration amount can be received after 12 months where the issue size exceeds 5 bln rupees.
However, the investee company will need to appoint a monitoring agency as required in case of a listed company under SEBI regulations. Such monitoring agencies will report to the investee company as prescribed by the relevant SEBI regulations for listed companies, the RBI said.
In the case of warrants, the RBI said pricing will be determined upfront, with 25% of the total consideration amount, including any share premium, to be received upfront. However, the remaining consideration towards fully-paid equity shares will be received within a period of 18 months.
The central bank also said the price-conversion formula for warrants will be determined upfront, with the price at the time of conversion not lower than the fair value worked out at the time of issuance of such warrants.
“Thus, investee company shall be free to receive consideration more than the pre-agreed price,” the RBI said. The central bank said a company whose activity or sector fell under the government route would need to take prior approval of the Foreign Investment Promotion Board for issuing partly-paid shares or warrants. It added that non-resident Indians will also be eligible to invest on a non-repatriation basis in partly-paid shares and warrants issued by Indian companies in accordance with the relevant provisions of the Companies Act, SEBI guidelines, and income tax provisions, as applicable.