Allows portfolio investors to participate in open offers, buybacks, disinvestment

To attract more investments into the equity and debt markets, the Reserve Bank of India has decided to put in place a framework for investments which allows foreign portfolio investors to participate in open offers, buyback of securities and disinvestment of shares by Central or State Governments.

The framework has been unveiled at a time when the Indian equity market is experiencing a bull run, with the BSE S&P Sensex racing past the 22,000-point mark to a lifetime high on expectations of a stable government emerging at the Centre post elections.

Under a new scheme called ‘Foreign Portfolio Investment’, the RBI said portfolio investors — foreign institutional investors (FIIs) and qualified foreign investors (QFIs) registered in accordance with SEBI guidelines — will now be called Registered Foreign Portfolio Investors (RFPIs).

According to the scheme, RFPIs can sell shares or convertible debentures in an open offer or through buyback of shares by a listed Indian company.

RFPIs can also acquire shares or convertible debentures in any bid for, or acquisition of, securities in response to an offer for divestment of shares made by the Central or any State Governments.

Further, they can acquire shares or convertible debentures in any transaction in securities pursuant to an agreement entered into with a merchant banker in the process of market making or subscribing to unsubscribed portion of the issue. The RFPI can offer cash or foreign sovereign securities with “AAA” rating or corporate bonds or domestic Government securities, as collateral to the recognised stock exchanges for their transactions in the cash as well as derivative segments of the market.

The portfolio investors will be eligible to open a special non-resident rupee (SNRR) account and a foreign currency account with the authorised dealer bank, and transfer sums from the foreign currency account to the SNRR account at the prevailing market rate for making genuine investments in securities.

The authorised dealer bank can transfer repatriable proceeds (after payment of applicable taxes) from the SNRR to the foreign currency account.

The individual and aggregate investment limits for the RFPIs will be below 10 per cent and 24 per cent, respectively, of the total paid-up equity capital, or 10 per cent and 24 per cent, respectively, of the paid-up value of each series of convertible debentures issued by an Indian company.

(This article was published on March 25, 2014)
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