Govt mulling FDI by way of warrants, partly-paid shares

In a bid to encourage FDI flow into the country, the government is considering allowing foreign direct investment (FDI) by way of instruments like warrants and partly-paid shares.

Warrants provide options to subscribers to convert them into shares at a pre-determined price on a future date.

The proposal to push FDI by relaxing norms is likely to be soon taken up by Cabinet Committee on Economic Affairs (CCEA), the highest economic policy making body in the country headed Prime Minister Manmohan Singh.

"FDI may be permitted for both warrants (options) and partly-paid shares, with prior government approval, with a minimum upfront payment of 25% and full payment within 12 months from date of issue," the draft Cabinet note of DIPP said.

Partly paid shares are those instruments where the investor pays an intial amount of a minimum 5% of the value and promises to pay the remaining sum as an when asked by the company.

Department of Industrial Policy and Promotion (DIPP) is an arm of Commerce and industry Ministry which deals with FDI related matters.

"The proposal is expected to benefit Indian companies in attracting more FDI inflows in the country," the draft said.

It also said that immediately upon issue of partly-paid shares/warrants, the full value represented by such instruments shall count towards computation of sectoral caps.

"Such instruements shall be subject to relevant guidelines under the FDI policy," it added.

FDI into the country declined by 23% to $16 billion from $20.86 billion.

Currently under the FDI policy, foreign direct investment through these instruments are not allowed in Indian companies by foreign entities or NRIs. However, applications for such requests have been cleared by the Foreign Investment Promotion Board (FIPB) on a case-by-case basis.

The draft further said that in the case of proposals involving application of conditionalities such as lock-in period of foreign investment applicable to some sectors, "the condition of 'lock-in' shall be applicable to each tranche of investments brought in".