Mumbai, July 14: The Reserve Bank of India today relaxed rules relating to foreign investment when it allowed partly paid shares and warrants to be recognised as FDI-compliant instruments.
At present, Indian companies are allowed to issue instruments such as equity shares and compulsorily and mandatorily convertible preference shares or debentures to overseas entities.
Besides, such instruments with an additional optional clause, but not one that allows an exit at an assured price, are also considered as FDI.
The list has now been widened.
“Partly paid equity shares and warrants issued by an Indian company according to the provisions of the Companies Act, 2013 and Sebi guidelines shall be eligible instruments for the purpose of FDI and foreign portfolio investment by foreign institutional investors or registered foreign portfolio investors, subject to compliance with FDI and FPI schemes,” the RBI said.
When a company issues a partly paid-up share, it receives only part of the equity value upfront. The rest of the amount can be obtained in instalments.
However, the central bank has stipulated certain conditions. It said the pricing of the partly paid equity shares would be determined upfront and 25 per cent of the total consideration amount (including share premium, if any), shall also be received upfront. The balance will have to be received within 12 months.
“The time period for receipt of the balance consideration within 12 months shall not be insisted upon where the issue size exceeds Rs 500 crore. Similarly, in case of an unlisted Indian company, the balance consideration amount can be received after 12 months where the issue size exceeds Rs 500 crore,’’ the RBI said.
It, however, pointed out that the company while issuing partly paid shares or warrants should ensure that the sectoral caps are not breached even after the shares get fully paid-up or warrants get converted into fully paid equity shares.