Indian firms in FDI-ban sectors can issue bonus shares to existing NRIs

The move is set to give much-needed clarity to companies in the tobacco sector that have been seeking clarification regarding the issuance of bonus shares, experts said

The government on Monday clarified that any Indian company engaged in a sector where foreign direct investment (FDI) is prohibited can issue bonus shares to its pre-existing non-resident shareholders.

 

However, after the issue of bonus shares, the shareholding pattern of the pre-existing non-resident shareholder would remain the same, according to a government notification.

 

The move is set to give the much-needed clarity to companies in the tobacco sector that have been seeking clarity regarding the issuance of bonus shares, experts said.

 

Under the FDI policy, tobacco is among the eight sectors where FDI is prohibited.

 

“An Indian company engaging in a sector/activity prohibited for FDI, is permitted to issue bonus shares to its pre-existing non-resident shareholder(s) provided that the shareholding pattern of the pre-existing non-resident shareholder(s) does not change pursuant to the issuance of bonus shares,” said Press Note 2 issued by Department for Promotion of Industry and Internal Trade (DPIIT).

 

According to the FDI policy, Indian companies can issue bonus shares to existing non-resident shareholders, subject to the sectoral caps applicable under the FDI norms.

 

Other sectors where FDI is prohibited includes lottery business, gambling and betting — including casinos — chit funds, Nidhi companies, trading in transferable development rights (TDRs), and real estate business or construction of farm houses.

 

They also include sectors that are not open to private player investment, including atomic energy and railway operations.

 

The clarification will be effective from the date of issue of the relevant Foreign Exchange Management Act (FEMA) notification, according to the note.