Validity Of Options In Private Equity Financing

Option contracts have been an integral part of the Merger, Private Equity (PE) Deals in India since the liberalization of the Indian Economy. Indian corporate have been using options to structure their deals, raising finances from the foreign lenders. The foreign lenders entering in India want to secure their interest in the Company. In order to secure the interest, the common features which are seen in the Agreements and contracts are the pre-emption rights for the investor in the form of Right of First Refusal, Tag Along Rights, Drag Along Rights, etc.

Apart from the above, an important aspect for a foreign investor is the 'return' which it will get from the investment made in India. In case of unlisted companies, it has been generally seen that PE secures its exit through Initial Public Offering or the buy back of shares or the purchase of the equity investment of the Foreign Investor by the promoters. The Agreements are so designed that such Agreements provide a