New Pricing Guidelines for shares issued / transferred in case of FDI

23 July 2014 • Dheeraj Sharma

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New Pricing Guidelines for shares issued / transferred in case of FDI

23 July 2014 • Dheeraj Sharma

The existing pricing guidelines for FDI applicable to transfer/issue of shares have undergone change vide RBI Circular dated 15th July, 2014. Here we have summarised the provisions as applicable to an Unlisted Company.

  • Issue of Shares: Price of shares issued to persons resident outside India from now on shall be as per any internationally accepted pricing methodology for valuation of shares on arm’s length basis, duly certified by a Chartered Accountant or a Merchant Banker. Earlier the provisions were based on discounted free cash flow method..
  • Exit Price: The Non Resident investor is not guaranteed any assured exit price at the time of making investment/agreements and shall exit at the fair price computed as per any “internationally accepted pricing methodology on arm’s length basis”, duly certified by Chartered Accountant or Merchant Banker at the time of exit.The earlier provisions allowed assured return to the Non Resident investor to exit from the investment (in equity shares of the investee company) at a price calculated on the basis of Return on Equity (RoE).
  • Disclosure in B/s : An Indian company taking on record in its books any transfer of its shares or convertible debenture by way of sale from a resident to a non-resident and a non-resident to a resident shall disclose in its balance sheet for the financial year, in which the transaction took place, the details of valuation of share or convertible debentures, the pricing methodology adopted for the same as well as the agency that has given/certified the valuation..

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