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Foreign Investors’ get major relief from RBI

In a major sop to foreign investors, the Reserve Bank of India (RBI) relaxed certain investment rules allowing Indian companies to sell partly paid shares or warrants to foreign investors. These are securities for which a buyer makes a partial payment in the first instance and pays up the remaining amount at a later date when the company requires.

According to the relaxed rules, the pricing of the partly paid up equity shares are to be determined upfront and 25 per cent of the total consideration amount shall also be received upfront. This includes share premium. And the balance consideration towards fully paid up equity shares has to be received within a year. The Central bank clarified that the time period for the balance amount for the partly paid up shares will not be insisted upon if the issue size exceeded Rs 500 crore. For warrants issued by companies the foreign investor will however have an 18 month period for paying the balance amount.

The benefit under the new rule is that the Indian company can get a higher price than the fair value computed at the time of the issuance of the warrants but is insulated from the price being lowered.

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