RBI Circular on ‘Issue of Partly Paid Shares and Warrants by Indian Company to Foreign Investors’

RBI Circular on ‘Issue of Partly Paid Shares and Warrants by Indian Company to Foreign Investors’

1. The Reserve Bank of India issued a Circular on ‘Issue of Partly Paid Shares and Warrants by Indian Company to Foreign Investors’ on July 14, 2014. The web-link of the said Circular is as below for ready reference:
https://rbidocs.rbi.org.in/rdocs/notification/PDFs/03NPR30714FS.pdf

2. Highlights of said Circular are as below:
A.P. (DIR Series) Circular No. 3 dated July 14, 2014 issued by the Reserve Bank of India, Foreign Exchange Department regarding ‘Issue of Partly Paid Shares and Warrants by Indian Company to Foreign Investors’

A review of the policy as regards partly paid shares and warrants has been undertaken and it has been decided as under:

Eligible instruments and investors

Partly paid equity shares and warrants issued by an Indian company in accordance with the provision of the Companies Act, 2013 and the SEBI guidelines, as applicable, shall be eligible instruments for the purpose of FDI and foreign portfolio investment (‘FPI’) by Foreign Institutional Investors (‘FIIs’)/ Registered Foreign Portfolio Investors (‘RFPIs’) subject to compliance with FDI and FPI schemes.
Pricing and receipt of balance consideration
Partly paid equity shares:
The pricing of the 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 time period for receipt of the balance consideration within 12 months shall not be insisted upon where the issue size exceeds INR 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 INR 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.
Warrants:
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.
Reporting
Partly paid equity shares:

The reporting of receipt of foreign inward remittance towards each upfrontcall payment for FDI transaction shall be made in Advance Reporting Form (as per format enclosed in the A.P. (DIR Series) Circular No. 3) along with copy(ies) of Foreign Inward Remittance Certificate/s (FIRC), Know Your Customer (KYC) report on non-resident investor and details of the Government approval, if any. The reporting of issue or transfer of partly paid shares shall be made in form FC-GPR and form FC-TRS respectively, to the extent the equity shares are called up. The reporting of purchase/ sale of partly paid shares by FIIs/RFPIs in form LEC by the designated branch of authorised dealer bank should be in accordance with FEMA regulations.
Warrants:
The identity of non-resident investor shall be disclosed for the purpose of compliance with KYC norms at the time of issuance of warrants.
The reporting of receipt of foreign inward remittance towards each upfront/ call payment for FDI transaction shall be made in Advance Reporting form (as per format enclosed in the A.P. (DIR Series) Circular No. 3) along with a copy(ies) of Foreign Inward Remittance Certificate/s (FIRC), Know Your Customer (KYC) report on non-resident investor and details of the Government approval, if any. The reporting of issue or transfer of warrants in form FC-GPR and form FC-TRS respectively, under the head ‘others’, shall reflect the extent up to which the amount in respect of equity shares has been called up by the company. The reporting of purchase/ sale of warrants by FIIs/RFPIs in form LEC under the head ‘others’ with suitable details by the designated branch of authorised dealer bank of FIIs/ RFPIs, should be in accordance with FEMA regulations.
Compliance

The onus of compliance of all the conditions under FEMA as regards entry route, sectoral caps and all other conditions under FDI guidelines shall be on the Investee company in case of issue of partly paid shares/ warrants as well as upon resident transferor or transferee in accordance with extant guidelines in case of transfer of partly-paid shares/ warrants. The onus of giving notice required under the provisions of the Companies Act, 2013 for transfer of partly-paid shares shall also be on the Investee company. The onus of compliance with individual limit below 10% of the total paid-up equity capital shall be on each FII/ RFPI. Further, the aggregate investments of all FIIs/RFPIs put together shall not exceed the applicable aggregate limit for each issue of partly paid shares.
Other conditions

Other conditions as listed in the A.P. (DIR Series) Circular No. 3 shall also be adhered to.

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