can issue equity
shares, fully, compulsorily and mandatorily convertible debentures and fully, compulsorily and mandatorily convertible preference shares subject
to pricing guidelines/valuation norms prescribed under FEMA Regulations.
The price/conversion formula of convertible capital instruments should be determined upfront at the time of
issue of the instruments. 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
instruments, in accordance with the extant FEMA rules/regulations [as per any
internationally accepted pricing methodology on arm’s length basis for the
unlisted companies and valuation
in terms of SEBI (ICDR)
Regulations, for the listed companies].
Optionality clauses are allowed in equity shares,
fully, compulsorily and mandatorily convertible debentures and fully,
compulsorily and mandatorily convertible preference shares under FDI scheme,
subject to the following conditions:
There is a minimum lock-in
period of one year which
shall be effective from the date of
allotment of such capital instruments.
After the lock-in
period and subject
to FDI Policy provisions, if any, the non-resident
investor exercising option/right shall be eligible
to exit without any assured return, as per pricing/valuation guidelines issued
under FEMA from time to time.
Other types of Preference shares/Debentures i.e. non-convertible, optionally convertible or partially convertible for issue of which funds
have been received
on or after May 1, 2007 are
considered as debt. Accordingly, all norms applicable for ECBs relating to
eligible borrowers, recognized lenders, amount and maturity, end-use
stipulations, etc. shall apply. Since these instruments would be denominated in
rupees, the rupee interest rate will be based on the swap equivalent of London Interbank
Offered Rate (LIBOR)
plus the spread as
permissible for ECBs of corresponding maturity.
The inward remittance received by the Indian company
vide issuance of DRs and FCCBs
are treated as FDI and counted towards FDI.
Acquisition of Warrants and Partly Paid Shares - An
Indian Company may issue warrants and partly paid shares to a person resident
outside India subject to terms and conditions as stipulated by the Reserve Bank
of India in this behalf, from time to time.
Issue of Foreign Currency
Convertible Bonds (FCCBs)
and Depository Receipts
FCCBs/DRs may be issued in accordance with the Scheme
for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through
Depository Receipt Mechanism) Scheme, 1993 and DR Scheme 2014 respectively, as
per the guidelines issued by the Government of India there under from time to time.
DRs are foreign
currency denominated instruments issued by a foreign Depository in a
permissible jurisdiction against
a pool of permissible securities issued or transferred to that foreign depository and deposited with a domestic custodian.
In terms of Foreign Exchange Management (Non-Debt
Instruments) Rules, 2019 as amended
from time to time, a person will be eligible to issue or transfer eligible
securities to a foreign depository, for the purpose of converting the
securities so purchased into depository receipts in terms
of Depository Receipts
Scheme, 2014 and guidelines issued by the Government of
India thereunder from time to time.
A person can issue DRs, if it is eligible
to issue eligible
instruments to person
resident outside India under relevant Schedules
under Foreign Exchange
Management (Non- Debt
Instruments) Rules, 2019, as amended from time to time.
The aggregate of eligible securities which may be
issued or transferred to foreign depositories, along with eligible securities
already held by persons resident outside India, shall not exceed
the limit on foreign holding
of such eligible
securities under the relevant regulations framed under
The pricing of eligible securities to be issued or transferred to a foreign
depository for the purpose
of issuing depository receipts should not be at a price less than the price applicable to a corresponding mode of issue or transfer
of such securities to domestic
investors under the relevant regulations framed under FEMA, 1999.
The issue of depository receipts as per DR Scheme 2014
shall be reported to the Reserve Bank by the domestic custodian as per the reporting guidelines for DR Scheme
(i) Two-way Fungibility Scheme: A limited
two-way Fungibility scheme has been put in place by the Government of India for ADRs/GDRs. Under this Scheme,
a stock broker in India, registered with SEBI, can purchase
shares of an Indian company from the market
for conversion into ADRs/GDRs
based on instructions received from overseas
investors. Re- issuance of
ADRs/GDRs would be permitted to the extent of ADRs/GDRs which have been
redeemed into underlying shares and sold in the Indian market.
(ii) Sponsored ADR/GDR
issue: An Indian company
can also sponsor an issue of ADR/GDR.
Under this mechanism, the company offers its resident shareholders a
choice to submit their shares back to the company so that on the basis
of such shares, ADRs/GDRs can be
issued abroad. The proceeds of the ADR/GDR issue are remitted back to India and distributed among the resident
investors who had offered their Rupee denominated shares for
conversion. These proceeds can be kept in Resident Foreign Currency (Domestic) accounts
in India by the resident shareholders who have tendered such shares for
conversion into ADRs/GDRs.