Appendix 72
SEBI GUIDELINES FOR FOREIGN INSTITUTIONAL INVESTORS
Press Note, dated 14‑9‑1992.‑ While presenting the Budget
for 1992‑93, the Finance Minister Dr. Manmohan Singh, had announced a
decision to allow reputed foreign investors, such as pension funds, etc., to
invest in Indian capital market. To operationalise this policy announcement, it
has become necessary to evolve guidelines for such investments by Foreign
Institutional Investors (FIIs). The following guidelines have been formulated
in this regard.
2. Foreign Institutional Investors (FIIs),
including institutions such as pension funds, mutual funds, investment trusts,
asset management companies, nominee companies and incorporated/institutional
portfolio managers or their power of attorney holders (providing discretionary
and non‑discretionary portfolio management services) would be welcome to
make investments under these guidelines.
3. FIIs would be welcome to invest in all
the securities traded on the primary and secondary markets, including the
equity and other securities/instruments of companies which are listed/to be
listed on the stock exchanges in India, including the OTC Exchange of India.
These would include shares, debentures, warrants and the schemes floated by
domestic mutual funds. The Government may even like to add further categories
of securities later from time to time.
4. FIIs would be required to obtain an
initial registration with the Securities and Exchange Board of India (SEBI),
the nodal regulatory agency for securities markets, before any investment is
inade by them in the securities of companies listed on the stock exchanges in
India, in accordance with these guidelines. Nominee companies, affiliates and
subsidiary companies of a FII will be treated as separate FII for registration,
and may seek separate registration with the SEBI.
5. Since there are foreign exchange
controls also in force, for various permissions under exchange control, along
with their application for initial registration. FIIs shall also file with SEBI
another application addressed to the Reserve Bank of India for seeking various
permissions under the Foreign Exchange Regulation Act, in a format that would
be specified by the Reserve Bank of India for this purpose. The Reserve Bank of
India's general permission would be obtained by SEBI before granting initial
registration and the Reserve Bank of India's Foreign Exchange Regulation Act
permission together by the SEBI, under a single window approach.
6. For granting registration to the FII,
SEBI shall take into account the track record of the FII, its professional
competence, financial soundness, experience and such other criteria that may be
considered by SEBI to be relevant. Besides, a FII seeking initial registration
with SEBI shall be required to hold a registration from the securities
commission, or the regulatory organisation for the stock market in the country
of domicile/incorporation of the FII.
7. SEBI's initial registration would be
valid for five years. The Reserve Bank of India's general permission under the
Foreign Exchange Regulation Act to the FII will also hold good for five years.
Both will be renewable for similar five‑year period later on.
8. The Reserve Bank of India's general
permission under the Foreign Exchange Regulation Act would enable the
registered FII to buy, sell and realise capital gains on investments made
through initial corpus remitted to India, subscribe/renounce rights offerings
of shares, investment on all recognised stock exchanges through a designated
bank branch, and to appoint a domestic custodian for custody of the investments
held.
9. This general permission from the
Reserve Bank of India shall also enable the FII to:
(a) open foreign currency denominated
account(s) in a designated bank. (There can even be more than one account in
the same bank branch each designated in different foreign currencies, if it is
so required by FII for its operational purposes):
(b) open a special non‑resident rupee
account to which could be credited all receipts from the capital inflows, sale
proceeds of shares, dividends and interest;
(c) transfer sums from the foreign currency
accounts to the rupee account and vice versa, at the market rates of exchange;
(d) make investments in securities in India
out of the balance in the rupee account;
(e) transfer repatriable (after tax)
proceeds from the rupee account to the foreign currency account(s);
(f) repatri able the capital, capital gains,
dividends, incomes received by way of interest, etc., and any compensation
received towards sale/renouncement of rights offerings of shares subject to the
designated branch of a bank/the custodian being authorized to deduct
withholding tax on capital gains and arranging to pay such tax and remitting
the net proceeds at market rates of exchange;
(g) register FII's holdings without any
further clearance under the Foreign Exchange Regulation Act.
10. There would be no restriction on the
volume of investment‑minimum or maximum‑for the purpose of entry of
FIIs, in the primary/secondary market. Also there would be no lock‑in
period prescribed for the purposes of such investments made by FIIs. It is
expected that the differential in the rates of taxation of the long‑term
capital gains and short‑term capital gains would automatically induce the
FIIs to retain their investments as long‑term investments.
11. Portfolio investments in primary or
secondary markets will be subject to ceiling of 24 per cent of issued share
capital for the total holdings of all registered FIIs, in any one company. The
ceiling would apply to all holdings taking into account the conversions out of
the fully and partly convertible debentures issued by the company. The holding
of a single FII in any company would also be subject to a ceiling of five per
cent of total issued capital. For this purpose, the holdings of an FII group
will be counted as holdings of a single FII.
12. The maximum holding of 24 per cent for
all non‑resident portfolio investments, including those of the registered
FIIs, will also include NRI corporate and non‑corporate investments, but
will not include the following:
(a) Foreign investments under financial
collaborations (direct foreign investments), which are permitted up to 51 per
cent in all priority areas.
(b) Investments by FIIs through the following alternative routes:
(i) Off‑shore single/regional funds;
(ii) Global depository receipts;
(iii) Euroconvertibles.
13. Disinvestment will be allowed only
through the stock exchanges in India, including the OTC exchange. In
exceptional cases, SEBI may permit sales other than through stock exchanges,
provided the sale price is not significantly different from the stock market
quotations where available.
14. All secondary market operations would be
only through the recognised intermediaries on the Indian Stock Exchange,
including OTC Exchange of India. A registered FII would be expected not to
engage in any short selling in securities and to take delivery of purchases and
give delivery of sold securities.
15. A registered FII can appoint as
custodian an agency approved by SEBI to act as a custodian of securities and
for confirmation of transactions in securities, settlement of purchase and
sale, and for information reporting. Such custodian shall establish separate
accounts for detailing on a daily basis the investment capital utilisation and
securities held by each FII for which it is acting as a custodian. The
custodian will report to the Reserve Bank of India and SEBI semi‑annually
as part of its disclosure and reporting guidelines.
16. The Reserve Bank of India shall make
available to the designated bank branches a list of companies where no
investment will be allowed on the basis of the upper prescribed ceiling of 24
per cent having been reached under the portfolio investment scheme.
17. The Reserve Bank of India may at any
time request by an order a registered FII to submit information regarding the
records of utilisation of the inward remittances of investment capital and the
statement of securities transactions. The Reserve Bank of India and/or SEBI may
also at any time conduct a direct inspection of the records and accounting
books of a registered FII.
18. FIIs investing under this scheme will
benefit from a concessional tax regime of a flat rate tax of 20 per cent on
dividend and interest income and a tax rate of 10 per cent on long‑term
(one year or more) capital gains. Necessary legislative amendment giving effect
to this will be brought at the time of the 1993‑94 Budget. All FIIs
investing under the scheme even in 1992‑93 will be covered.
Disinvestment of equity by foreign investors
Press release, dated 15‑9‑1992.‑ In the wake of the various
liberalisation measures introduced by the Government of India and the Reserve
Bank of India since July 1991, it has been decided that the Reserve Bank will
expeditiously approve disinvestment proposals from the foreign investors
subject to certain guidelines. Accordingly, the Reserve Bank of India will
permit on a near automatic basis, transfer of shares with regard to
disinvestment proposals from foreign investors. The sale, though, will have to
be done on the stock exchanges through a registered merchant banker or a stock
broker. RBI will grant such approvals under section 19(5) of FERA, 1973.
The RBI will also give
permission to cases where the foreign investor wishes to transfer his
shareholding, not through a stock exchange but on a private basis, to another
non‑resident or to a resident, including one of the co‑promoters.
Such transfer could be for any reason including a condition incorporated in the
collaboration agreement that such shares will be sold to him by the foreign
collaborators. Permission will also be granted to overseas transferees under
section 29(1)(b) of the FERA, 1973, where applicable. On the pricing aspect, in
the case of transfer from a nonresident to a resident, the Reserve Bank will
satisfy itself that the shares have been sold at a price arrived at by taking
the average of quotations on the stock exchange for one calendar month‑preceding
the date of application or prevailing market price on the date of application
or the price sought for by the applicant, whichever was the lowest.
In the absence of a market
price, as in the case of unlisted companies, whether closely‑held or
partnership concerns, and also in the case of listed companies where shares are
not regularly traded, the Reserve Bank will be guided by net asset value and
earnings per share, For this purpose, the guidelines notified in December 1990
by the erstwhile Controller of Capital Issues (CCI) for share valuation would
be modified appropriately to take into account higher price to earnings (P/E)
ratios in comparable industries.
Applications in this regard
in Form ST‑ 1 along with the necessary documents may be submitted to the
Controller, Reserve Bank of India, Exchange Control Department, Foreign
Investment Division (i), II th Floor, Central Office Building, Bombay‑400
023. (Issued by the Reserve Bank of India vide Press Release dated 15‑9‑1992].
Preferential Allotment by Listed Companies to FIIs‑ [SEBI
Circular, dated 11‑1‑1994]
According to the present
Guidelines for Foreign Institutional Investors (FIIs), the FIIs registered with
SEBI are allowed to invest in all securities traded on the primary and
secondary markets including equity and other securities/instruments of
companies listed/to be listed on the stock exchanges in India including the OTC
Exchange of India. These instruments would include shares, debentures, warrants
and other schemes floated by domestic mutual funds.
Requests have been received
from the industry to allow listed companies to make preferential allotment in
favour of registered FIIs for meeting the immediate resource requirements
especially for medium and small sized companies.
It has, therefore, been
decided that hence forth listed companies may make preferential allotment to
FIIs registered with SEBI subject to the following conditions:
(i) The company shall obtain the consent of
the shareholders in a general body meeting under Section 81(1A) of the
Companies Act for making preferential allotment to registered Fll(s).
(ii) The preferential allotment made to each
FII shall be in accordance with the ceilings on FII holdings mentioned in the
Guidelines for FIIs. In other words, the holding of a single sub‑account
of an FII in any company will be subject to a ceiling of 5 per cent of the
total issued capital and the maximum holding of all non‑resident
portfolio Indians including those of registered FII and NRI corporate and non‑corporate
NRIs shall be 24 per cent. The issuer company shall keep the aforesaid ceilings
in view while making preferential allotment to the FIIs.
(iii) The preferential allotment shall be made
to the registered FIIs at a price not less than the highest price during the
last 26 weeks on all the stock exchanges where the securities of the company
are listed.
Modified Guidelines for Foreign Institutional Investors (Taxation
Aspect)
The following modifications
of FII Guidelines dated 14‑9‑92 in general, and paragraph 9(f) and paragraph
18 of those Guidelines in particular, are issued by way of clarification in the
light of the enactment of section 115AD of the Income‑tax Act through the
Finance Act, 1993:
The taxation of income of
Foreign Institutional Investors from securities or capital gains arising from
their transfer, for the present, shall be as under:
(i) The income received in respect of
securities (other than units of offshore Funds covered by section 115AB of the
Income‑tax Act) is to be taxed at the rate of 20%;
(ii) Income by way of long‑term capital
gains arising from the transfer of the said securities is to be taxed at the
rate of 10%;
(iii) Income by way of short‑term capital
gains arising from the transfer of the said securities is to be taxed at the
rate of 30%;
(iv) The rates of income‑tax as
aforesaid will apply on the gross income specified above without allowing for
any deduction under section 28 to 44C, 57 and Chapter VI‑A of the Income‑tax
Act.
The expression
"securities" referred to above shall have the meaning assigned to it
in clause (h) of section 2 of the Securities Contract (Regulation) Act, 1956.
These include:
(i) Shares, scrips, stocks, bonds,
debentures, debenture stock or other marketable securities of a like nature in
or of any incorporated or other body corporate;
(ii) Government securities; and
(iii) Rights or interests in securities.
On account of
the concessional rate of income‑tax on the capital gains, the provisions
currently available to non‑residents for protection from fluctuation of
rupee value against foreign currency for computing capital gains arising from
the transfer of shares in, or debentures of, an Indian company, will not apply
to the Foreign Institutional Investors covered under section 115AD of the
Income‑tax Act. Further, the benefit of cost inflation indexation will
also not be available to FIIs while computing long‑term capital gains
arising to them on transfer of securities.
Shares in a
company shall have to be held from more than 12 months in order to qualify as a
long‑term capital asset. Other securities shall have to be held for more
than 36 months in order to qualify as a long‑term capital asset.
2. The expression "Foreign
Institutional Investor" has been defined in section 115AD of the Income‑tax
Act to mean such investors as the Central Government may, by notification in
the official gazette, specify in this behalf. The FIIs as are registered with
Securities and Exchange Board of India will be automatically notified by the
Central Government for the purposes of section 115AD.
3. Income of Foreign Institutional
Investors from securities shall be subject to deduction of tax at source.
However, no deduction of tax shall be made from any income by way of capital
gains arising from the transfer of securities. In order that the tax on capital
gains arising to FIIs can be realised, each FII, while applying for initial
registration with Securities and Exchange Board of India, will have to specify
an agent, including a person who is treated as an agent under section 163 of
the income‑tax Act for the said purposes. [F.No. 5(13)/SE/91‑FIU,
Ministry of Finance, Departmet of Economic Affairs (Investment Division) the 24‑3‑1994].
Preferential allotment to FIIS‑SEBI Press Release dated 13‑5‑1994
It has been decided in consultation
with the Reserve Bank of India that
(1) In respect of all applications from
companies for preferential allotment in FIIs received by RBI upto 30‑4‑1994,
approval will be granted subject to the condition that the aggregate
FII/NRI/OCB investment does not exceed 24 per cent of the equity of the
company.
(2) In respect of all applications received/
to be received by RBI after the above date, FII investments by way of
preferential allotments will be permitted upto 15 per cent of the equity of the
company subject to the condition that the aggregate FII/NRI/OCB investment does
not exceed 24 per cent of the equity of the company.
(3) The holding of a single FII (or a sub‑account
wherever applicable) in a company will not exceed the ceiling of 5 per cent of
the equity capital of a company as per the existing Guidelines for FIIs.
(4) The relevant date for the purpose of 26
weeks would be the date of the resolution passed by the General Body of
Shareholders under section 81 (a) of the Companies Act.
(5) Prior approval under FERA, 1973 of the
RBI will be necessary in all such cases. For this purpose, an application is to
be made to the Controller, Exchange Control Department, Foreign Investment
Division‑II, Reserve Bank of India, Central Office, Bombay‑400 023.
The remaining Guidelines as
brought out in the Press Release issued by SEBI on 11‑1‑1994 will
remain unchanged.
[Issued by the II MARP of
SEBI vide Press Release dated 13‑5‑1994].
Approval for Raising Foreign Equity in Existing Companies: Revised Guidelines
for Determining Issue Price of Preferential Shares‑Press Note No. 2/94,
dated 3‑6‑1994
In implementing the
Statement on Industrial Policy of July 1991, the procedure for raising foreign
equity in existing companies in India, including those which do not have any
foreign equity at present, has been laid down in this Ministry's Press Note No.
13 of 1992 issued on 29‑6‑1992. In supersession of Press Note No.
13 of 1992 the revised guidelines for determining the issue price of
Preferential Shares are outlined below:
A. Eligibility Criteria for
Increase in Foreign Equity
The following
categories of companies will receive automatic approval from the Reserve Bank
of India for raising foreign equity, including those which have no foreign
equity at present.
(i) Companies wishing to raise foreign equity as part of an
expansion programme
An existing
company wishing to raise foreign equity upto 51 per cent may do so as part of
an expansion programme. The expansion programme must be in high priority
industries shown in Annex III to the Statement on Industrial Policy of 24th
July, 1991. The fresh/additional equity should be part of the financing of the
expansion programme. The increase in equity level must result from expansion of
the equity base of the existing company and the money to be remitted should be
in foreign exchange. The company itself need not be exclusively engaged in
activities listed in Annex III, only the proposed expansion must be
predominantly in the high priority industries shown in Annex III.
(ii) Companies wishing to raise foreign equity without any
expansion programme
An existing
company predominantly engaged in high priority industries listed in Annex III
can also raise foreign equity upto 51 per cent without an expansion programme.
The increase in equity level must result from expansion of the equity base of
the existing company. The foreign equity must be from remittance of foreign
exchange.
2. Other Proposals
All other
proposals for inducting or raising foreign equity in existing companies will be
subject to prior approval of the Government. This will include proposals for
raising foreign equity upto 51 per cent in existing companies which do not meet
any or all of the criteria outlined for automatic approval as also proposals
for raising foreign equity beyond 51 per cent in existing companies.
B. Requirement for
Preferential Share Allocation
3. Preferential
share allocation of the required volume of equity to the foreign investor will
have to be approved by the shareholders through a special resolution under
section 81 (1A) of the Companies Act.
All proposals for raising
foreign equity or inducting new foreign equity in existing companies through
preferential share allocation must be accompanied by this resolution.
C. Issue of Share and Share
Valuation
4. Consequent to the repeal of the Capital
Issues (Control) Act of 1947 and issue of guidelines by the SEBI on 11th
and 17th June, 1992, existing companies wishing to raise foreign
equity can make the issue at the price determined by the shareholders as a
special resolution under section 81 (1A) of the Companies Act. However, some
proposals received from existing companies for enhancement of foreign equity
show a tendency for the issues to be significantly under‑priced in
relation to the market price. Whereas companies are able to issue foreign
equity at a large discount to the market price, the present RBI policy for
disinvestment permits shares etc. to be sold at the prevailing market related
price. This can cause distortion in the balance of inflow/outflow of foreign
exchange. Thus, further rationalisation of policy is required with the
following objectives:
(i) To prevent a few shareholders from
getting substantial and undue enrichment and unearned gains.
(ii) To prevent undue reductions in foreign equity inflow.
(iii) To make both investment and disinvestment market related.
In pursuance of
these objectives the Government of India in consultation with the Reserve Bank
of India, have decided that preferential allotment of shares by companies shall
be at market related price and accordingly would apply the following guidelines
in this regard:
"Every
preferential allotment of shares by companies (Allotment of shares other than
allotment on rights basis) shall be at market value of the shares. Ile issue
price shall be determined on the basis of their average price during the
immediate preceding 6 months at the main listing centre. This would be
calculated on the monthly average of the high and low rates quoted for the
shares at such centres. While submitting applications for raising foreign
equity under automatic route to RBI, the companies would work out the price
according to the above guidelines and enclose them duly certified by a
Chartered Accountant."
The above
guidelines of pricing in connection with preferential allotment to
non-residents will apply to all foreign investment approvals to be issued by
the Reserve Bank of India under the automatic route as well as by the
Government of India (SIA). While submitting applications for raising foreign
equity or for inducting foreign equity under automatic norms to the Reserve
Bank of India or for obtaining approval of the Reserve Bank of India for
allotment of shares under the applicable provisions of the Foreign Exchange
Regulation Act, 1973 and guidelines thereunder, the companies shall work out
the price according to the above guidelines and enclose them duly certified by
a Chartered Accountant. However, in case of approvals from the Government, the
question of pricing of shares would be considered in accordance with above
guidelines by the RBI and only after such Government approval is given. The
Government approval thus, would not go into the question of pricing of shares.
The above
guidelines shall also apply to all pending applications.
D. Procedures for Approval
5. Applications for automatic approval
under the eligibility criteria outlined in para A above will be filed with the
Reserve Bank of India. In the case of expansion programme the application shall
state clearly the description of the article to be manufactured in ITC (HS)
classification. The proposal shall be a composite one including detailed
information on the capital goods to be imported for the project expansion
programme. Under the provisions of the policy the proposed foreign equity must
cover the import of capital goods required for the expansion programme.
Similarly, in the case of
companies not undertaking expansion programmes, the application shall describe
the existing products of the company in ITC (HS) classification.
6. The Reserve Bank of India will issue
the necessary permission for the foreign equity investment under the Foreign
Exchange Regulation Act, 1973 (FERA) and guidelines thereon. Simultaneously the
Reserve Bank of India will confirm that the import of capital goods is covered
by the foreign equity. The import of capital goods will be governed by the
Import and Export Policy in force.
E. Dividend Balancing
7. The Statement on Industrial Policy had
provided for the monitoring of outflow of foreign equity on account of dividend
payments which are to be balanced by export earnings over a period of time, and
that this monitoring will be done by the Reserve Bank of India. The dividend
balancing will be done on the following basis only in respect of foreign
investment approvals in the consumer goods sector:
(i) The balancing of dividend would be over
a period of 7 years reckoned from the date of commencement of production for
companies raising foreign equity for an expansion programme. For companies
which are raising foreign, equity without an expansion programme, this period
will start from the date of allotment of the shares for raising foreign equity.
(ii) Remittance of dividends should be
covered by earnings of the company from export of items in Annex‑III. The
amount of dividend payment may be covered by export earnings of such items
recorded in years prior to the payment of dividend or in the year of payment of
dividend. The Reserve Bank of India will issue appropriate instructions to give
effect to these provisions.
F. Other Proposals for
Raising Foreign Equity in Existing Companies
8. All other proposals for
inducting or raising foreign equity in existing companies will be subject to
usual procedures. Applications will be made to the Secretariat of Industrial
Approvals in the Department of Industrial Development, Udyog Bhavan, New Delhi
in the prescribed Form FC (SIA) or to the Chairman. FIPB, PM's Office, South
Block, New Delhi. Plain paper applications carrying all relevant details are also
accepted. No fee is payable. These applications can also be filed with the
Indian Mission/Embassies abroad. This will include proposals involving raising
foreign equity upto 51% in existing companies which do not meet any or all of
the criteria outlined for automatic approval.
G. Classification System
9. Entrepreneurs may note that the
description of article(s) to be manufactured should be stated according to the
Indian Trade Classification (Harmonised System).
10. The description of industries listed in
Annex‑III of the Statement on Industrial Policy in the Indian Trade
Classification (Harmonised System) is available in Press Note No. 11 (1991
Series). (Copies of the Indian Trade Classification Based on Harmonised
Commodity Description and Coding System), published by the Ministry of
Commerce, Directorate General of Commercial Intelligence and Statistics,
Calcutta, can be obtained on payment from the Secretariat of Controller of
Publications, 1, Civil Lines, Delhi‑110 054, or from any of the agents
authorised to sell Government of India publications.
[Issued by the Ministry of
Industry, Department of Industrial Development, Secretariat for Industrial
Approvals (Foreign Collaboration Division) vide Press Note No. 2, 1994 Series;
F.No. 9(30)/92‑FC(1) dated 3‑6‑1994].
Raising of Foreign Equity to 51 % in Existing Companies through
Perferential Allotment to NRIs‑ Guidelines for Determining Issue Price
Circular dated 8‑7‑1994.‑ Attention of authorised
dealers is drawn to paragraph 10.B2 of the Exchange Control Manual (1993
edition) indicating the procedure for making applications to Reserve Bank for
permission under section 19(1) of FERA, 1973, for issue of shares to non‑residents
by Indian companies.
2. Government of India have
since announced the revised guidelines in connection with raising of foreign
equity in the existing Indian companies through preferential allotment of
shares to nonresidents as also pricing thereof as per Ministry of Industry's
Press Note No. 2 (1994 Series) dated 3‑6‑1994 (as above) (followed
by Reserve Bank Press Release of the same date).
In terms of these
guidelines, preferential allotment of shares (other than allotment on rights
basis) should be approved by the shareholders by a special resolution under
section 81(lA) of the Companies Act, 1956 (where applicable). Further, the
preferential allotment shall be at the market value of the shares to be
determined on the basis of their average price during the immediate preceding
six months at the main listing centre, calculated on the monthly average of
high and low rates quoted for the shares at such centre. However, in the case
of companies whose shares are not listed on stock exchange/s or the companies
whose shares are listed but not regularly traded, the valuation of shares should
be done on the basis of Net Asset Value (NAV) and Profit Earning
Capacity Value (PECV) per
share as per the valuation guidelines notified by the erstwhile Controler of
Capital Issues, (CCI), Government of India, in December 1990. [See Appendix No.
114] These guidelines will be applicable in respect of approvals to be granted
by Reserve Bank under the automatic approval scheme as also for approvals to be
granted by Government (SIA/FIPB). Accordingly, the issue price should be fixed
after taking into account the following aspects:
(i) The six months period should be
reckoned from the month preceding the month in which the company's Board
Resolution in connection with preferential allotment has been passed.
(ii) The average price should be worked out
based on average of daily high and low price of the share for the said six
months.
(iii) The price worked out as above should be
certified by an independent Chartered Accountant.
3. Indian companies intending to raise
foreign equity through preferential allotment of equity shares to non‑residents
should, therefore, submit their applications to Reserve Bank in terms of
paragraph 1013.2 of the Manual within two months from the date of passing of
the Board Resolution and accompanied by‑ (i) a certified true copy of the
Board resolution together with a certified true copy of the General Body
Resolution passed under section 81(1A) of the Companies Act, 1956, relating to
preferential allotment of shares to non‑residents or a confirmation that
the provisions of section 81 (1A) of the Companies Act, 1956, are not
applicable to the company (where not applicable), and (ii) a certificate from
an independent Chartered Accountant giving the full details of the working of
the issue price as stated above. [Issued by the Reserve Bank of India, Exchange
Control Department, vide A.D. (M.A. Series) Circular No. 12, dated 8‑7‑1994].
Press Report dated 11‑10‑1994.‑ The Companies which have
received the approval of the Reserve Bank of India (RBI) and the consent of
their shareholders for preferential allotments on or before August 4, 1994, can
make such allotments without the lock‑in‑period of five years. Such
allotments should however, be completed, with full allotment taking place, by
November 3, 1994.
This clarification issued by
the Securities and Exchange Board of India (SEBI) on Monday would permit
several companies to make preferential allotments which were stalled by SEBI
guidelines of August 4,1994.
SEBI, in its guidelines on
preferential allotments issued on August 4, 1994, had stated that the five‑year
lock‑in‑p~riod would apply to allotments if the companies have not
made the allotments by August 4, 1994.
SEBI also clarified today
that firm allotments out of public issues can continue to be made to mutual
funds, financial institutions, FlIs (including OCBs and NRIs) and employees
without being subject to any lock‑in period.
This clarification would
clear confusion emerging from the August 4 guidelines which imposed the lock‑in‑period
of five years on preferential allotments. The August 4 guidelines of SEBI did
not impose any lock‑in‑period on firm allotments to public issues.
In fact, SEBI never
stipulated any lock‑in‑period for firm allotments from public
issues, except for promoters which remains unchanged at five years.
In its guidelines on October
11, 1993, SEBI had prescribed maximum permissible firm allotments from public
issues to various categories such as financial institutions (20 per cent),
Indian mutual funds (20 per cent), FIIs (24 per cent), employees (10 per cent).
It had explicitly stated
that shares issued on firm allotments to these categories "will not be
subject to lock‑in‑period". The issuers were permitted to fix
lock‑in‑periods if they desired.
SEBI also clarified that
transfer of shares amongst promoters specifically as described in the
prospectus is also permissible. But, the requirement relating to lock‑in‑period
would continue to the extent initially prescribed.
SEBI also reiterated that
the issuers have the option to decide whether the issue is to be underwritten
or not. However, if the issue is not underwritten and if the minimum
subscription of 90 per cent of the offer to the public is not received, the
entire amount received as subscription would have to be refunded in full.
[Press Report issued in Economic Times, dated 11‑10‑1994].
SEBI Press Release No. 122194 and 123/94, dated 10‑10‑
1994
I. It
has been decided in consultation with the Government and the Reserve Bank of
India (RBI) that all cases of preferential allotment which have been approved
by RBI on or before August 4, 1994 will be allowed to be completed, as per the
terms of the then existing SEBI Guidelines for preferential issues dated
January 11 and May 13, 1994. This would however be subject to the condition
that the transactions in all such cases shall be completed with allotment
taking place in full by November 3, 1994.
The stock exchanges are
being separately advised to permit listing in all such cases. [Press Release
122/94, dated 10‑ 10‑ 1994].
II. In response to various
queries received by SEBI pertaining to certain aspects of public issues, the
following clarifications are furnished for the information of all concerned:
(i) Firm allotments out of public issues
can continue to be made to Mutual Funds, Financial institutions, FIIs
(including OCBs and NRIs) and employees of the issuer companies without being
subject to any lock‑in‑period. However, the allotment made to
promoters will continue to be subject to the lock‑in‑period
prescribed.
(ii) Similarly, transfer of shares amongst
promoters specifically described as such in the prospectus is also permissible
but the requirement relating to lock‑in‑period would continue to
apply to the extent initially prescribed.
(iii) To reduce the cost of issue it has also
been decided that the issuers have the option to decide whether the issue is to
be underwritten or not. However, if the issue is not underwritten and if the
minimum subscription of 90% of the offer to the public is not received, the
entire amount received as subscription would have to be refunded in full.
[Press Release 123/94, dated 10‑10‑ 1994].
Press Release No. PR/1 12/96 dated 9th November, 1996 issued by the
Securities and Exchange Board cff India, II MARP Department
Following the announcement
made by the Finance Minister to ease the restrictions on investment by FIIs in
debt securities, the SEBI has approved the necessary changes to the SEBI
(Foreign Institutional Investors) Regulations, 1995. The main features of the
changes are as follows:
1. Any FII or sub‑account already
registered with SEBI or to be registered would continue to be governed by the
ceiling of 30 per cent on debt instruments.
2. In addition, any registered FII willing
to make 100 per cent investments in debt securities will be permitted to do so
subject to specific approval from SEBI as a separate category of FIIs or sub
accounts as 100 per cent debt funds. In such cases, the restriction of 30 per
cent debt will not be applicable.
3. FII investment in debt through the 100
per cent route will be subject to an overall debt cap of US$ 1.0‑1.5
billion for investment by all FIIs mentioned in 2 above.
4. SEBI will impose individual ceiling on
individual funds or sub‑accounts. This ceiling will be based on the track
record of the FII and its experience in managing debt funds in emerging markets
and other objective criteria. Individual debt funds would be informed of the
respective ceiling at the time of the registration/approval.
5. Investments by FIIs through the 100 per
cent debt route would be permitted only in debt securities of companies which
are listed or to be listed.
6. Investment by FlIs in debt securities
through the 100 per cent route would be permitted without any restriction on
maturity of the debt securities invest in.
7. Investment by FIIs in debt securities
through the 100 per cent route would be without any limit on investment in the
debt securities of any particular issuer.
The SEBI Board had earlier
approved changes to the FII regulations permitting investment by individual
FIIs or sub‑accounts of FIIs in upto 10 per cent of the equity capital of
investee companies, permitting investment in unlisted securities and including
endowment funds in the eligible categories of FIIs. These changes have already
come into effect on 9th October, 1996 with their notification in the official
Gazette.
RBI had vide Circular
EC.CO.FII/11.01.01(16)/2000‑01, dated August 7, 2000 permitted Foreign
Institutional Investors (FIIs) to trade in exchange traded index futures
contracts on the Derivative Segment of BSE and the F&O Segment of NSE
provided the overall open interest of the FII would not exceed 100% of market
value of the concerned FII's total investment.
The SEBI Board vide meeting,
dated December 28, 2001 has permitted FIIs to trade in all exhange traded
derivative contracts and laid down the position limits for the trding of FIIs
and their sub‑accounts. RBI vide Circular ECO.CO.FII/515/11.01.01/(16)
2000‑01, dated February 4, 2002 permitted FIIs to trade in all the
exchange traded derivative contracts subject to the position limits prescribed
hereunder. The FIIs shall be under obligation to adhere to the position limits
prescribed for them and their sub‑accounts. the FIIs shall also comply
with the procedure for trading, settlement and reporting as prescribed by the
derivative exchange/Clearing House/Clearing Corporation from time to time. The
position limits for FII and their sub‑accounts shall be as under:
I. Position Limits
At the level of the FII
• In the case of index related
derivative products there shall be a position limit at the level of FII at 15%
of the open interest of all derivative contracts on a particular underlying
index or Rs. 100 crores whichever is higher, per exchange.
• The FII position limit in derivative
contracts on a particular underlying stock would be at 7.5% of the open
interest of all derivative contracts on a particular underlying stock or Rs. 50
crores whichever is higher, at an exchange.
At the level of the sub‑account
• Each sub‑account of a FII would have the following
position limits:
• A disclosure requirement for any
person or pesons acting in concert who together own 15% or more of the open
interest of all derivative contracts on a particular underlying index.
• The gross open position across all derivative
contracts on a particular underlying stock of a sub‑account of a FII
should not exceed the higher of.
• 1% of the free float market capitalisation (in terms of
number of shares).
or
• 5% of the open interest in the
derivative contracts on a particular underlying stock (in terms of number of
contracts)
This position limits would
be applicable on the combined position in all derivative contracts on an
underlying stock at an exchange.
The Derivative Segment of
the Exchanges and their Clearing House/Clearing Corporation would monitor the
FII position limits at the end of each trading day. For this purpose, the
Derivative Segment of the Exchanges and their Clearing House/Clearing
Corporation would implement the following procedure for the monitoring of the
FII and the sub‑account's position limits :
1. The FII would be required to notify the
names of the Clearing member/s and Custodian through whom it would clear its
derivative trades to exchanges and their Clearing House/Clearing Corporation.
2. A unique code would be assigned by the
exchanges and/or the Clearing House/Clearing Corporation to each registered FII
intending to trade in derivative contracts.
3. The FII would be required to confirm
all its positions and the positions of all its sub accounts to the designated
Clearing Members online but before the end of each trading day.
4. The designated Clearing Member/s would
at the end of each trading day would submit the details of all the confirmed
FII trades to the derivative Segment of the exchange and their Clearing
House/Clearing Corporation.
5. The exchanges and their Clearing
House/Clearing Corporation would then compute the total FII trading exposure
and would monitor the positon limits at the end of each trading day. The
cumulative FII position may be disclosed to the market on a T+1 basis, before
the commencement of trading on the next day.
6. In the event of an FII breaching the
position limits on any derivative contract on an underlying, the FII would not
be permitted by the exchanges and their Clearing House/Clearing
Corporation/Clearing Member/s to take any fresh positions in any derivative
contracts in that underlying. However, they would be permitted to execute
offsetting transactions so as to reduce their open position.
7. The FIIs while trading for each sub‑account
would also assign a unique client code with a prefix or suffix of the code
assigned by the exchange and their Clearing House/Clearing Corporation to the
FII. The FII would be required to enter the unique sub‑account code
before executing a trade on behalf of the sub‑account.
8. The sub‑account position limits
would be monitored by the FII itself, on the same lines as the trading member
monitors the position limits of its client/customer. the FIIs would report any
breach on position limits by the sub‑account, to the derivative segment
of the exchange and their Clearing House/Clearing Corporation and the
FII/Custodian/Clearing Member/s would ensure that the sub‑account does
not take any fresh positions in any derivative contracts in that underlying.
However the sub‑account would be permitted to execute offsetting
transactions so as to reduce its open position.
9. The exchanges may assign unique sub‑account
codes on the lines of unique client codes to each sub‑account of a FII,
which would enable the derivative segment of the exchange and their Clearing
House/Clearing Corporation to monitor the position limits specified for sub‑accounts.
II. Computation of the
position Limits
The position limit would be
computed on a gross basis at the level of a FII and on a net basis at the level
of sub‑accounts and proprietary positions.
The open position for all
derivative contracts would be valued as the open interest multiplied with the
closing price of the respective underlying in the cash market.