Valuation and pricing-guideline compliance for inbound foreign investment.
FEMA pricing guidelines set a floor on what a non-resident pays when acquiring shares from a resident and a cap on what a non-resident receives when selling to a resident, with the objective that capital does not leave or enter the country at a distorted price. For an unlisted company the price must be determined by an internationally accepted pricing methodology certified by a registered valuer or merchant banker, and for a listed company the SEBI pricing rules apply. Getting the valuation wrong on either side is a contravention that can require compounding.
The practical challenge is that the commercial price negotiated between the parties must reconcile with a defensible valuation certificate, and the two can diverge in a distressed sale, a bargain acquisition, or a premium strategic deal. We manage the valuation process, reconcile the commercial and regulatory prices, and document the basis so the pricing stands up to RBI and audit scrutiny at the time and on a later exit.
Determining the FEMA floor on inbound purchases and the cap on resident buy-backs or exits for the specific transaction.
Coordinating the registered valuer or merchant banker to produce a certificate on an internationally accepted methodology that supports the deal price.
Reconciling the negotiated commercial price with the regulatory pricing in distressed, bargain, and premium transactions.
Applying pricing to equity, convertible instruments on conversion, swaps, and rights issues, each of which has its own rule.
Building the valuation and pricing record so it withstands RBI, auditor, and future-diligence scrutiny.
Advising on compounding where a past transaction breached the pricing guidelines.
The price must be at or above a floor determined by an internationally accepted pricing methodology, certified by a SEBI-registered merchant banker or a registered valuer. The non-resident cannot pay below that floor to a resident seller.
No. On a sale to a resident, the price must not exceed the valuation cap determined under the FEMA guidelines. The cap protects against capital leaving the country at an inflated price.
It is a contravention of FEMA and is liable to compounding with the RBI. The transaction may need to be regularised, which is why the valuation and pricing should be settled and documented before closing.
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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