CCPS, CCD and convertible-instrument structuring compliant with FEMA pricing rules.
Foreign investors routinely use compulsorily convertible preference shares and compulsorily convertible debentures to invest into Indian companies, because these instruments give downside protection and structured economics while still qualifying as equity under FEMA. The critical point is that only compulsorily and mandatorily convertible instruments are treated as FDI-eligible equity; optionally convertible or redeemable instruments are treated as debt and fall under the external commercial borrowing regime with entirely different conditions.
The conversion price or the conversion formula must be fixed upfront and must comply with FEMA pricing guidelines, and any assured return or exit at a pre-agreed price is prohibited for a non-resident holder. We structure the instrument, the conversion mechanics, and the shareholder protections so that the economics the investor wants are achieved without crossing into impermissible assured-return or debt territory, and we complete the reporting.
Choosing between CCPS, CCD, and equity based on the investor economics, downside protection, and FEMA eligibility.
Fixing the conversion price or an upfront formula that complies with FEMA pricing guidelines and survives later valuation movement.
Ensuring the instrument does not provide a guaranteed return or assured exit price to the non-resident, which FEMA prohibits.
Structuring anti-dilution, liquidation preference, and conversion ratchets within the limits FEMA permits for equity instruments.
Drafting the instrument terms, the shareholders agreement, and the articles so the FEMA position and the commercial deal are consistent.
Completing FC-GPR on issue and the reporting on conversion into equity shares.
Only compulsorily and mandatorily convertible debentures are treated as equity and qualify as FDI. Optionally convertible or redeemable debentures are treated as debt and fall under the external commercial borrowing framework, with different eligibility and conditions.
No. FEMA prohibits an assured return or a guaranteed exit price for a non-resident holder of an equity instrument. Exit can be at a price determined by a pricing methodology at the time of exit, but not at a pre-agreed assured figure.
The conversion price or the formula to arrive at it must be determined upfront at the time of issue and must comply with FEMA pricing guidelines. It cannot be left open to be set later at the investor discretion.
No. No engagement is treated as accepted until conflicts, scope and terms are confirmed in writing. An initial discussion is confidential and is used only to understand the matter and assess fit.
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