16 September, 2015
It has now been decided to allow partly paid shares and warrants as eligible capital instruments for purposes of FDI. The review of the policy to include warrants and partly-paid shares has been under consideration of the Government for some time now. Prior to this relaxation, warrants and partly paid shares could only be issued to foreign investors only after approval through the Government route, that is, the Foreign Investment Promotion Board (“FIPB”). The definition of “Capital” in the Consolidated FDI Policy Circular of 2015 has accordingly been amended with effect from May 12, 2015 by Press Note NO. 9 (2015) Series. Partly paid shares and warrants may now be issued to foreign investors in terms of the Companies Act, 2013, without the prior approval of the Government, however, subject to terms and conditions as may be stipulated by the Reserve Bank of India from time to time.
In terms of current Reserve Bank of India regulations, prior approval of the FIPB is required where the Indian company’s activity/sector falls the approval route. Otherwise for Indian companies whose activities/sectors are under the automatic route, issue of partly paid shares and warrants do not require any prior regulatory approval. However, pricing of the partly paid equity shares/warrants (and the price/conversion formula for the warrants) has to be determined upfront and 25% of the total consideration amount (including share premium, if any), has to be received upfront. The balance consideration towards fully paid equity shares has to be received within a period of 12 months (18 months in the case of warrants) except where the issue size exceeds Rs. 5 billion and complies with certain conditions.
For further information, please contact:
Alfred Adebare, Lex Counsel Law Offices
aadebare@lexcounsel.in
