Pricing Guidelines for FDI instruments with optionality clauses (i) Notification No. FEMA. 294/2013-RB dated November 12, 2013 (ii) Press release No. 2013-2014/1388 dated January 9, 2014 (iii) A.P. (DIR Series) Circular No. 86 dated January 9, 2014 As per the extant regulations, only equity shares or convertible preference shares/debentures without optionality clause are eligible instruments to be issued to persons resident outside India under the FDI policy. On a review, RBI has decided that optionality clauses (but without any option/right to exit at an assured price) 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 FDI Scheme. The optionality clause shall oblige the buy-back of securities from the investor at the price prevailing/value determined at the time of exercise of the optionality so as to enable the investor to exit without any assured return subject to the following conditions: (a) Such instruments shall be locked-in period of one year or a minimum lock-in period as prescribed under FDI Regulations, whichever is higher (e.g. defence and construction development sector where the lock-in period of three years has been prescribed). The lock-in period shall be effective from the date of allotment of such shares or convertible debentures or as prescribed for defence and construction development sectors, etc. in Annex. B to Schedule 1 of Notification No. FEMA. 20 as amended from time-totime; (b) 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. Any agreement permitting return linked to equity as above shall not be treated as violation of FDI policy/ FEMA Regulations. For the above purpose, RoE shall mean Profit After Tax/Net Worth; Net Worth would include all free reserves and paid up capital. (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. The guiding principle would be that the non-resident investor is not guaranteed any assured exit price at the time of making such investment/agreement and shall exit at the price prevailing at the time of exit, subject to lock-in period requirement, as applicable. All existing contracts will have to comply with the above conditions to qualify as FDI compliant. Consequently, RBI has amended the Regulation 5 and Regulation 9 of Notification No. FEMA 20/2000–RB vide Notification No. FEMA 294/2013- RB dated November 12, 2013 effective from December 30, 2013. Invitation for comments on 7th edition of Consolidated FDI Policy Circular As the next edition of the Consolidated FDI Policy Circular i.e. ‘Circular 1 of 2014’ is scheduled to be issued on 31-03-2014 which will be effective from 01-04-2014, The Department of Industrial Policy & Promotion (DIPP) has invited comments/suggestions on ‘Circular 1 of 2013’ invited from stakeholders by 17-01-2014 for consideration. The comments may be sent to the Director, DIPP and/or emailed at [email protected]. Review of the existing policy on FDI in the Pharmaceuticals Sector Press Note No. 1 (2014 Series), dated January 8, 2014 issued by the Department of Industrial Policy & Promotion The Government of India (GOI) has reviewed the position of FDI in the pharmaceuticals sector and has decided that the existing policy relating to FDI in the pharmaceuticals sector as given in paragraph 6.2.18 of ‘Consolidated FDI Policy - Circular 1 of 2013’ would continue with the condition that ‘non-compete’ clause would not be allowed except in special circumstances with the approval of the Foreign Investment Promotion Board.
Posted on: Thu, 13 Feb 2014 12:01:52 +0000
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