Foreign Investments In Preference Shares

With a view to mobilizing foreign investment through issue of preference shares, the Government of India (GOI) had earlier permitted issuance of equity shares, preference shares, convertible preference shares by Indian companies to persons resident outside India in respect of financial projects / industries.

The Reserve Bank of India has on 8^th June 2007 amended the guidelines applicable to foreign investment in preference shares. Pursuant to the revised guidelines, foreign investment from the issue of fully convertible preference shares would be treated as part of the share capital, which would be included in computing the sectoral caps on foreign equity.

Foreign investment inflow from the issue of non-convertible, optionally convertible or partially convertible preference shares, would be treated as debt and be required to conform to the guidelines/caps pertaining to External Commercial Borrowings (ECB).