Foreign Investors Permitted To Put: Some Cheer, Some Confusion

• Amendment recognizes shares/debentures with a built-in option/right as eligible instruments which may be issued to foreign investors;
• Such securities cannot have an assured exit price, although the Amendment specifies methodologies to determine the exit price;
• The prescribed price determination measures may make it more beneficial to invest in compulsorily convertible securities rather than equity shares;
• A minimum lock-in period of one year has been prescribed before the option can be exercised.

'Put Options' in favour of a non-resident requiring an Indian resident to purchase the shares held by the non-resident under the foreign direct investment ("FDI") regime were hitherto considered as violative of the FDI Policy by the Reserve Bank of India ("RBI"). The RBI has now legitimized option arrangements through its recent amendment ("Amendment") to the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside