Earlier, Companies who were desirous of issuing share warrants and partly paid shares to non residents were required to approach the Foreign Investment Promotion Board (FIPB) for approval. The Department of Industrial Policy and Promotion (DIPP) has vide press note 9 (2015 series) has amended the definition of ‘Capital’ to include warrants and also inserting a new clause for permitting Indian Companies to issue share warrants and partly paid up shares under the automatic route after the fulfillment of conditions specified by the Reserve Bank of India.
With the amendment coming in to effect companies can now issue share warrants and partly paid up shares to non-residents individuals / entities subject to the conditions as prescribed by RBI.
The company while issuing partly paid shares or warrants shall have to 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 conditions prerequisite to issuing of partly paid up shares to non-resident as per Master Circular issued by the Reserve Bank of India are as follows:
1. The pricing of Partly paid up shares has to be determined up front
2. 25% of the total consideration amount has to be received up front on application
3. The balance consideration towards fully paid up shares shall be received within a period of 12 months.
4. The time period for receipt of the balance consideration can exceed more than 12 months in case of issue size is more than 500 crores and the company appoints a Monitoring agency
5. The monitoring agency shall submit its report in Schedule IX on a half yearly basis, till the proceeds of the issue have been fully utilized. [as per SEBI (ICDR)]
The conditions prerequisite to issuing of warrants to non-resident as per Master Circular
issued by the Reserve Bank of India are as follows:
1. The pricing / conversion formula of the warrants shall be determined upfront.
2. 25% of the total consideration amount has to be received up front on application
3. The balance consideration towards fully paid up equity shares shall be received within a period of 18 months
4. 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. Thus Investee Company shall be free to receive consideration than the pre-agreed price.
Note: 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.
