The government plans to relax the rules on instruments like warrants and partly paid-up shares for foreign investors who pick up stakes in Indian companies. According to the new policy being framed, foreign funds brought in through these instruments would be counted as FDI once they are issued by Indian companies in favour of their foreign counterparts, official sources told FE.
In sectors where FDI is allowed through the automatic route, foreign investors wanting to use these instruments to conclude their equity deals in India would be exempt from prior approval. Currently, even in these sectors, FDI through warrants and partly paid-up shares are scrutinised for approval, as the FDI policy doesn?t recognise the use of these instruments.
In the case of warrants, companies would have to convert these instruments into fully-paid up shares within 18 months of issue. Partly paid-up shares would have to be mandatorily converted into fully paid-up equity within six months of issue.
Funds brought in through warrants would be subject to sectoral conditions like minimum capitalisation and lock-in after they get fully converted into fully paid-up shares. In the case of partly paid-up shares, these would be subjected to similar conditions once they get issued. A decision on this has been taken by the DIPP and FIPB, and the proposal would now be placed before the Cabinet for final approval, the sources said.
A warrant is a financial instrument that allows the holder to buy shares of a company at a pre-determined price and within a specified period. Warrants are popular with Indian companies as these can be attached to convertible bonds or preferred stock and carry lower interest rates or dividends.
The latest policy initiative would make things simpler for both Indian and foreign firms. While issuing partly paid-up share capital, a company receives only a part of the agreed value of the equity upfront. The rest could be paid in installments.