FOREIGN DIRECT INVESTMENT - PRICING GUIDELINES FOR FDI INSTRUMENTS WITH OPTIONALLY CLAUSES

ISSUING AUTHORITY : RESERVE BANK OF INDIA

DATE OF ISSUE : 09/01/2014

EFFECTIVE DATE : IMMEDIATE EFFECT

CIRCULAR NO. 86

It has now been decided that optionality clauses may henceforth be allowed in Equity Shares and compulsorily and mandatorily convertible Preference Shares/Debentures to be issued to a person resident outside India under the Foreign Direct Investment (FDI) Scheme.

The provision of optionality clause shall be subject to the following conditions:

• There is a minimum lock-in period of one year or a minimum lock-in period as prescribed under FDI Regulations, whichever is higher.
• After the lock-in period, as applicable above, the non-resident investor exercising option/right shall be eligible to exit without any assured return, as under:

(i) In case of a listed company, the non-resident investor shall be eligible to exit at the market price prevailing at the recognised stock exchanges

(ii) In case of unlisted company, the non-resident investor shall be eligible to exit from the Investment in equity shares of the investee company at a price not exceeding that arrived at on the basis of Return on Equity (RoE) as per the latest audited balance sheet. 

(iii) Investments in Compulsorily Convertible Debentures (CCDs) and Compulsorily Convertible Preference Shares (CCPS) of an investee company may be transferred at a price worked out as per any internationally accepted pricing methodology at the time of exit duly certified by a Chartered Accountant or a SEBI registered Merchant Banker.

For detailed Circular, please follow the link below:

A.P. (DIR Series) Circular No. 86