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Bringing relief to the country’s private equity investors, the government has amended the foreign direct investment policy by removing a new clause that did not consider any investment with in-built options such as put options or call options as FDI transaction. Put and call options are the most common route for any PE investor to exit from his portfolio companies. According to the new paragraph (no. 3.3.2.1) that the Department of Industrial Policy and Promotion (DIPP) added in the FDI policy and released on September 30, only equity shares, fully, compulsorily and mandatorily convertible debentures and preference shares, with no in-built options of any type, would qualify as eligible instruments for FDI.
According to PE investors, the new clause was detrimental to the future PE investments in India. The PE investors had met officials of DIPP last week and received a positive nod regarding the removal of the clause. Indian Private Equity & Venture Capital Association (IVCA) said it would continue to follow up the matter with the Department of Economic Affairs (DEA), Finance Ministry and the RBI. “After all, the insertion has been made primarily at the behest of the RBI,” said IVCA president Mahendra Swarup. Following IVCA’s meeting, officials of DEA also agreed that while a decision on this matter was under consideration, any insertion in the policy must only be prospective and not made in retrospective effect applicable to already valid transactions, according to PE investors who are involved in the discussion. (Source : Business Standard, dated 1-11-2011)
