The Consolidated Foreign Direct Investment Policy (Effective Oct 01, 2011) states as below:
- Only equity shares, fully, compulsorily and mandatory convertible debentures and fully, compulsorily and mandatory convertible preference shares,with no in-built options of any type, would qualify as eligible instruments for FDI. Equity instruments issued/transferred to non-residents having in-built options or supported by options sold by third parties would lose their equity character and such instruments would have to comply with the extant ECB guidelines.
- Preference shares/ debentures i.e., non-convertible, optionally convertible or partially convertible for issue of which funds have been received on or after May 01, 2007 are considered as debt. Accordingly, all norms applicable for ECBs relating to eligible borrowers, recognised lenders, amount and maturity, end-use stipulations, etc shall apply.
In view of the aforesaid it is imperative to examine the documentation in relation to issue of securities (equity shares, fully, compulsorily and mandatorily convertible debentures and fully, compulsorily and mandatory convertible preference shares) and if required make suitable modification to ensure that their equity character is retained.