RBI eases foreign investment norms to attract funds

KOLKATA: The Reserve Bank of India has eased foreign investment rules to attract funds for local ventures in an economy struggling to generate investments. The banking regulator has decided to recognise partly-paid equity shares and warrants issued by local companies as eligible instruments for the purpose of foreign direct investment ( FDI) and foreign portfolio investments.

Till date, only equity shares and compulsorily & mandatorily convertible preference shares or debentures were recognised by RBI as FDI-compliant instruments. Equity shares and compulsorily & mandatorily convertible preference shares or debentures, containing an optionality clause but without right to exit at an assured price, have also been recognised as FDI-compliant instruments. RBI has now expanded the scope of FDI and foreign institutional investments.

Pricing of the partly-paid equity shares will be determined upfront and 25 per cents of the total consideration amount (including share premium, if any) will also be received upfront. The balance consideration towards fully-paid equity shares shall be received within a period of 12 months, RBI said on Monday. However, the regulator said no company should insist on making the balance payment within 12 months if the issue size exceeds Rs 500 crore and the issuer complies with Sebi rules.

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.

RBI has allowed overseas investors to make balance payment towards fully paidup equity shares within 18 months in case of warrants. The price at the time of conversion should not be lower than the fair value worked out at the time of issuance of such warrants, RBI said. Thus, an investee company shall be free to receive consideration more than the pre-agreed price.

RBI told Indian companies whose activity falls under the government route to take prior approval of the Foreign Investment Promotion Board for issue of partly-paid shares or warrants.