Date: |
14-07-2014
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Notification No: |
RBI/2014-15/123 A.P.(DIR Series) Circular No.3
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Issuing Authority: |
RBI
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Type: |
A.P.D.(Series) Circulars
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File No: |
RBI/2014-15/123 |
Subject: |
Issue of Partly Paid Shares and Warrants by Indian Company to Foreign Investors
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RBI/2014-15/123
A.P.(DIR Series) Circular No.3
July 14, 2014
To,
All Category – I Authorised Dealer Banks
Madam/Sir,
Issue of Partly Paid Shares and Warrants by Indian Company to Foreign Investors
Attention of Authorized Dealers Category –I (AD Category-I) banks is invited to
the Foreign Exchange Management (Transfer or Issue of Security by a Person
Resident outside India) Regulations, 2000 (principal Regulations) notified by
the Reserve Bank of India vide
Notification No. FEMA.20/2000-RB dated 3rd May
2000, in terms of which only equity shares and compulsorily and mandatorily
convertible preference shares/debentures are recognised as Foreign Direct
Investment (FDI) compliant instruments. Further, equity shares or compulsorily
and mandatorily convertible preference shares/debentures containing an
optionality clause but without any option/ right to exit at an assured price
have also been recognised as FDI compliant instruments.
- A review of the policy as regards partly paid shares and warrants has been
undertaken and it has been decided as under:
(i) 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.
(ii) Pricing and receipt of balance consideration
(a) 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 rupees five hundred 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 rupees five
hundred crores. 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.
(b) 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.
(iii) Reporting
(a) Partly paid equity shares
The reporting of receipt of foreign inward remittance towards each upfront /call
payment for FDI transaction shall be made in Advance Reporting Form (format
enclosed) 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.
(b) 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 (format
enclosed) 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.
(iv) 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% (ten per cent) 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
- The following other conditions shall also be adhered to:
- The Indian company whose activity/ sector falls under government route would
require prior approval of the Foreign Investment Promotion Board (FIPB),
Government of India for issue of partly-paid shares/ warrants.
- The forfeiture of the amount paid upfront on non-payment of call money shall
be in accordance with the provisions of the Companies Act, 2013 and Income tax
provisions, as applicable;
- The company while issuing partly paid shares or warrants shall ensure that
the sectoral caps are not breached even after the shares get fully paid-up or
warrants get converted into fully paid equity shares. Similarly, the
Non-resident investors acquiring partly paid shares or convertible debentures or
warrants shall ensure that the sectoral caps are not breached even after the
shares get fully paid-up or warrants get converted into fully paid equity
shares.
- The deferment of payment of consideration amount or shortfall in receipt of
consideration amount as per applicable pricing guidelines by the foreign
investors will not be covered under these guidelines so as to be treated as
subscription to partly paid shares and warrants. Thus, the Investee company
under these guidelines for issue/transfer of partly-paid shares/warrants, shall
require to comply with the requirements under the Companies Act, 2013 for
issuance of partly paid shares and warrants;
- Non-Resident Indians (NRIs) shall also be eligible to invest on
non-repatriation basis in partly-paid shares and warrants issued by Indian
companies in accordance with the provisions of the Companies Act/ SEBI
guidelines / Income tax provisions, as applicable. Investments by NRIs in
partly-paid shares and warrants on non-repatriation basis shall also be subject
to terms and conditions stipulated in Schedule 4 to
Notification No. FEMA.
20/2000-RB dated 3rd May 2000, as amended from time to time.
- Reserve Bank has since amended the Principal Regulations through the Foreign
Exchange Management (Transfer or Issue of Security by a Person Resident outside
India) (Ninth Amendment) Regulations, 2014 notified vide
Notification No. FEMA.
308 /2014-RB dated June 30, 2014 c.f. G.S.R. No. 436(E) dated July 8, 2014.
- Authorised Dealer banks may bring the contents of this circular to the notice
of their constituents and customers concerned.
- The directions contained in this circular have been issued under sections
10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and
are without prejudice to permissions/approvals, if any, required under any other
law.
Yours faithfully,
(B.P. Kanungo)
Principal Chief General Manager
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