Market regulator Sebi on Tuesday proposed that Indian companies, which issue partly paid-up shares and warrants to foreign investors, should receive an upfront payment of at least 25 per cent of the total amount.
The move comes after Reserve Bank of India (RBI) in July allowed foreign investors to invest in partly-paid shares and warrants of Indian companies.
In the discussion paper, Securities and Exchange Board of India (Sebi) said that pricing as well as conversion formula for warrants have to be determined upfront.
For subscribing in partly-paid shares and warrants (through public and rights issue mode), Sebi proposed that foreign investors should make an upfront payment of 25 per cent of the issue price.
Further, the remaining payment should be made in the next 12-months in case of partly-paid shares and 18 months for warrants.
At present, there is no minimum upfront payment requirement for warrants. In the case of partly-paid shares, there is no minimum upfront requirement in rights issue case while it remains at 25 per cent when it is through public issuance.
The discussion paper on ‘issuance of partly paid shares and warrants by Indian companies’ would be open for comments till December 14. The views would be taken into account before the market regulator decides on amendments to the Issue of Capital Disclosure Regulations (ICDR).
Sebi has also proposed to increase the conversion period for warrants to 18 months from the current time period of 12 months. This is being proposed for warrants allotted through public and rights issues.
Currently, the time period is 18 months with respect to preferential issue of warrants.
To enable application by foreign investors and ensure uniformity with the RBI guidelines, Sebi said that in case of “part payment option being provided by the issuer in rights issue, the part payment on application shall not be less than 25 per cent of the issue price.”
“Pricing of the warrants and price/conversion formula shall be determined upfront and 25 per cent of the consideration amount shall be received upfront. In case of non-exercise of warrants, entire upfront payment may be forfeited by the issuer,” it added.