Instruments of investments in FDI:
Instruments of investments in FDI:
I.
Equity Shares: The Indian Company can issue equity shares in accordance with the provisions of the Companies Act, as applicable, shall include equity shares that have been partly paid, subject to pricing guidelines/valuation norms prescribed under FEMA Regulations
Equity Shares: The Indian Company can issue equity shares in accordance with the provisions of the Companies Act, as applicable, shall include equity shares that have been partly paid, subject to pricing guidelines/valuation norms prescribed under FEMA Regulations
II.
Preference Shares: The Indian Company can issue Fully, compulsorily
& mandatorily convertible preference shares subject to pricing
guidelines/valuation norms prescribed under FEMA Regulations. Preference shares
shall be required to be fully paid, and should be mandatorily and fully
convertible.
III.
Debenture: The Indian
Company can issue Fully, compulsorily & mandatorily convertible Debentures subject
to pricing guidelines/valuation norms prescribed under FEMA Regulations. Debentures shall be required to be fully paid,
and should be mandatorily and fully convertible.
Condition:
§
The Indian Company can issue above mentioned
securities subject to pricing
guidelines/valuation norms prescribed under FEMA Regulations.
Price
Guidelines:
o The
price/conversion formula of convertible capital instruments should be
determined upfront at the time of issue of
the instruments.
o The price at the time of conversion should not in
any case be lower than the fair value worked out, at the time of issuance of
such instruments, in accordance with the extant [1]FEMA
regulations
IV.
Warrant: Fully, compulsorily &
mandatorily convertible Warrant.
Further,
‘warrant’ includes Share Warrant issued by an Indian Company in accordance to
provisions of the Companies Act, 2013 subject to terms and conditions as
stipulated by the Reserve Bank of India in this behalf, from time to time.
A. When Company will
determine the price or conversion formula of convertible Instrument?
The Company will determine the
price or conversion formula of convertible Instrument at the time of issue of
the instruments.
B. Whether price can be
lower than the fair value worked out at the time of issuance of such instrument?
The price at the time of
conversion should not in any case be lower than the fair value worked out, at
the time of issuance of such instruments.
C. Whether Optionality
clauses are allowed to holder of Equity/ Preference shares and debentures?
Yes, Optionality clauses are allowed in equity
shares, fully, compulsorily and mandatorily convertible debentures and fully,
compulsorily and mandatorily convertible preference shares under FDI scheme, subject
to the following conditions:
CONDITION:
Lock in Period: There is a minimum lock-in period of one year which
shall be effective from the date of allotment of such capital instruments[2].
After the lock-in
period and subject to FDI Policy provisions, if any, the non-resident investor
exercising option/right shall be eligible to exit without any assured return,
as per pricing/valuation guidelines issued by RBI from time to time.
D. Whether Indian Company
can issue Non-Convertible/ optionally convertible or Partly Convertible
Preference Shares or Debentures to Foreign Investors under FDI?
No, Indian Company can’t issue Non-Convertible/
optionally convertible or Partly Convertible Preference Shares or Debentures to
Foreign Investors under FDI.
If Company will issue the same and received the fund
will be consider as Debt. Accordingly all norms applicable for ECBs relating to
eligible borrowers, recognized lenders, amount and maturity, end-use
stipulations, etc. shall apply.
V.
DRs and FCCBs: The inward
remittance received by the Indian company vides issuance of DRs and FCCBs are
treated as FDI and counted towards FDI.
Conditions:
i. FCCBs/DRs may be issued in accordance
with the Scheme for issue of Foreign Currency Convertible Bonds and Ordinary
Shares (Through Depository Receipt Mechanism) Scheme, 1993 and DR Scheme 2014
respectively, as per the guidelines issued by the Government of India there
under from time to time.
ii.
DRs
are foreign currency denominated instruments issued by a foreign Depository in
a permissible jurisdiction against a pool of permissible securities issued or
transferred to that foreign depository and deposited with a domestic custodian.
iii. In terms of Notification
No. FEMA.20/2000-RB dated May 3, 2000 as amended from time to time, a person
will be eligible to issue or transfer eligible securities to a foreign
depository, for the purpose of converting the securities so purchased into
depository receipts in terms of Depository Receipts Scheme, 2014 and guidelines
issued by the Government of India there under from time to time.
iv. A person can issue DRs,
if it is eligible to issue eligible instruments to person resident outside
India under Schedules 1, 2, 2A, 3, 5 and 8 of Notification No. FEMA 20/2000-RB
dated May 3, 2000, as amended from time to time.
v. The aggregate of
eligible securities which may be issued or transferred to foreign depositories,
along with eligible securities already held by persons resident outside India,
shall not exceed the limit on foreign holding of such eligible securities under
the relevant regulations framed under FEMA, 1999.
vi. The pricing of eligible
securities to be issued or transferred to a foreign depository for the purpose
of issuing depository receipts should not be at a price less than the price
applicable to a corresponding mode of issue or transfer of such securities to
domestic investors under the relevant regulations framed under FEMA, 1999.
vii.
The issue of depository receipts as per DR Scheme 2014 shall
be reported to the Reserve Bank by the domestic custodian as per the reporting guidelines for DR
Scheme 2014.
VI.
ADR & GDR:
Two-way
Fungibility Scheme:
§ A limited
two-way Fungibility scheme has been put in place by the Government of India for
ADRs/GDRs.
§ Under this
Scheme, a stock broker in India, registered with SEBI, can purchase shares of
an Indian company from the market for conversion into ADRs/GDRs based on
instructions received from overseas investors.
§ Re-issuance of
ADRs/GDRs would be permitted to the extent of ADRs/GDRs which have been
redeemed into underlying shares and sold in the Indian market
Sponsored ADR/GDR issue:
§ An Indian
company can also sponsor an issue of ADR/GDR.
§ Under this
mechanism, the company offers its resident shareholders a choice to submit
their shares back to the company so that on the basis of such shares, ADRs/GDRs
can be issued abroad.
§ The proceeds of
the ADR/GDR issue are remitted back to India and distributed among the resident
investors who had offered their Rupee denominated shares for conversion.
§ These proceeds
can be kept in Resident Foreign Currency (Domestic) accounts in India by the
resident shareholders who have tendered such shares for conversion into
ADRs/GDRs.
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