Pricing of Options To Foreign Investors

The last few weeks have witnessed
some activity from the Reserve Bank of India (RBI), which is indicative of a
more liberalized approach towards the pricing at which foreign investors are
able to sell their shares upon exercise of options (such as put options) made
available to them under contractual documentation. Most of the indications came
from the RBI in relation to a specific case involving Tata-Docomo wherein the
RBI seemed willing to permit the exercise of options at the agreed price
(although that was different from the price permitted by the regulations).
Further discussion and analysis about this can be found on The
and Ajay
Shah’s Blog
While the earlier scenario was
limited to a specific case, RBI’s announcement in its recent monetary policy is
more broad-based and likely to have a wider impact when implemented. The
relevant extract is as follows:
20. With a view to
meeting the emerging needs of foreign direct investment in various sectors with
different financing needs and varying risk perceptions as also to offer the
investor some protection against downside risks, it has been decided in
consultation with the Government of India to introduce greater flexibility in
the pricing of instruments/securities, including an assured return at an
appropriate discount over the sovereign yield curve through an embedded optionality
clause or in any other manner. Guidelines in this regard will be issued
While this represents a broader
policy pronouncement towards relaxation of the rules on options and similar
instruments available to foreign investors, the exact mechanisms are yet
unclear (as this discussion
also suggests). The nature and extent of the flexibility to be introduced can
be garnered only for the fine print of the guidelines, which are awaited.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.


  • Regarding the article the relaxation which was given by which RBI circular number? All i have seen is the Sixth bi monthly statement of the RBI dated 03 Feb 2015. Has the transfer gone ahead by which circular ? or has it been referred to a government division?

  • Thank you for your reply. So it would be right to say that the permission has been granted to Tata to purchse dococmo shares? Or is still pending and after formal permission is granted? and that no circular is out which would apply from now on.

  • I wish to know if RBI has come out with any circular articulating on the proposed changes to bring about price flexibility, as mentioned in the Sixth Bi-Monthly Monetary Policy Statement, 2014-15 of 3 Feb 2015. What is the current pricing requirement for a foreign investor's exit? Is the requirement of "No Assured Return" still applicable?

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