RBI allows issue of partly paid equity shares and warrants to foreign investors

Pricing has to be decided upfront

The Reserve Bank of India (RBI) has allowed issue of partly paid equity shares to Foreign Institutional Investors (FIIs)/Registered Foreign Portfolio Investors (RFPIs) and also made such instruments as eligible instruments for the purpose of FDI, subject to certain conditions. The RBI said that the pricing of partly paid equity shares shall be determined upfront and 25% of the total consideration amount (including share premium, if any), shall also be received upfront. The balance consideration towards fully paid equity shares shall be received within a period of 12 months.

The RBI also said that the time period for receipt of the balance consideration within 12 months shall not be insisted upon where the issue size exceeds Rs 500 crore and the issuer complies with Regulation 17 of the SEBI (Issue of Capital and Disclosure Requirements (ICDR)) Regulations regarding monitoring agency. 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. However, the investee company shall appoint a monitoring agency on the same lines as required in case of a listed Indian company under the SEBI (ICDR) Regulations. Such monitoring agency (AD Category -1 bank) shall report to the investee company as prescribed by the SEBI regulations, ibid, for the listed companies.

With regard to partly paid warrants, the RBI said that the pricing of the warrants and price/conversion formula shall be determined upfront and 25% of the consideration amount shall also be received upfront. The balance consideration towards fully paid up equity shares shall be received within a period of 18 months. The price at the time of conversion should not in any case be lower than the fair value worked out, at the time of issuance of such warrants, in accordance with the extant FEMA Regulations and pricing guidelines stipulated by RBI from time to time. Thus, Investee Company shall be free to receive consideration more than the pre-agreed price, the RBI said.

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