Foreign investment into India will be significantly hampered
by revisions to the country’s foreign direct
investment (FDI) policy.
The Reserve Bank of India’s
(RBI) policy amendments, which became effective on October 1,
stipulate that only equity shares and fully, compulsorily and
mandatorily convertible debentures or preference shares now
qualify as eligible instruments for FDI. It also states that
these instruments should have no in-built options of any
Equity instruments with in-built options or
options support that are sold by third parties to non-residents
also lose their equity character and will thereby need to
comply with External Commercial Borrowing (ECB) guidelines.
The Indian government has taken strong exception in recent
months to the use of put options in equity investments as a
method of guaranteeing returns to foreign investors and...