MODIFICATION OF PRICING GUIDELINES FOR FDI INSTRUMENTS WITH OPTIONALITY/ BUYBACK CLAUSE

As a relief, the recent RBI notification has allowed the optionality clauses in equity shares under FDI. However, it has also prescribed that exit value will be determined at the time of exercise of the buyback option so that the investor exits without any assured IRR (confirming with the basic principle that Equity Investor cannot be not guaranteed any assured exit price at the time of making such investment).

In this context, RBI has validated a new mechanism for valuation (capping exit from unlisted companies based on ROE and listed companies based on their prevailing market price) for cases where such shares were issued with optionality clause (under Buyback arrangement).

However, specifically for exit of compulsory convertible instruments, RBI has allowed use of any internationally accepted pricing methodology duly certified by a Chartered Accountant or a SEBI registered Merchant Banker which provides more flexibility and discretion to the foreign investors (compared to sole method of DCF prescribed till now). 


To know how we can assist you with our FDI Valuation Services, please contact:

Mr. Chander Sawhney
Vice President
Corporate Professionals
+911140622252, +919810557353,
Email:chander@indiacp.com

Mr. Pankaj Singla
Sr. Associate
Corporate Professionals
+9111406222293, +919971508320,
 Email:- pankaj@indiacp.com