Govt nod for FDI via warrants likely to go

NEW DELHI: Overseas firms may not require the government���s approval to acquire stake in local companies through warrants, according to a senior industry ministry official.

The only caveat: the Indian company should belong to a sector where foreign investment is allowed freely or under the automatic route. These include mining, wholesale, retail, construction, real estate and oil exploration.

The easing of approval norms will allow foreign firms to speedily conclude their equity deals. A decision in this regard is expected in the next fortnight, the official said, on condition of anonymity.

A warrant is a financial instrument that allows the holder to buy shares of a company at a pre-determined price and within a specified period. Warrants are popular with Indian companies as these can be attached to convertible bonds or preferred stock and carry lower interest rates or dividends.




All foreign investment through warrants currently need the approval of Foreign Investment Promotion Board (FIPB), a procedure that usually takes 20 days to a month.

Companies falling under the ambit of automatic foreign direct investment route are permitted to issue shares to their foreign partners without seeking the FIPB approval. However, the government needs to give the go-ahead for the issue of warrants. This lack of clarity compels foreign companies to seek an FIPB clearance across all sectors.

���There is little need for the government���s approval if the Indian company conforms to the SEBI���s disclosure norms,��� says Saroj Jha, a partner with FoxMandal, a Delhi-based law firm. Five companies, including Spice Jet and Essel Shyam Telecom, sought the government���s permission last month to allot warrants to their foreign partners. Earlier in September, the government had allowed drugmaker Ranbaxy to issue warrants to Japan���s Daichi Sanko in a deal worth $4 billion.