Decision on put, call options to boost foreign investments: CII

NEW DELHI: The proposal to allow 'put' and 'call' options in share purchase agreements would encourage inflow of foreign investment, industry body CII said today.

"This was one of the key impediments to FDI flow into the infrastructure sector. The clearance from the Law Ministry would pave the way for an amendment to be moved to the Securities Contracts (Regulation) Act, against the proposal initially moved by SEBI," it said in a statement.

It said that the proposal to remove restrictions on using options in shareholders' pact for M&A and PE transactions "would encourage inflow of foreign investment into the country".

It said that the move would also help industry in hedging their risks besides putting to rest any doubts regarding the use of options.

"Overseas investors and lenders may be willing to consider short to medium term lock in periods of 3 to 5 years if put option from the resident promoters are allowed," it added.

Law Ministry has decided to move ahead with a proposal to allow "put" and "call" options in share purchase agreements to permit listed companies to buy or sell equity at a predetermined price in future.

Under the Securities Contracts (Regulations) Act (SCRA), put and call options are treated as derivatives and are not permitted outside stock exchanges. The unlisted companies, however, can go for put and call options.