Foreign inflows get Sebi boost

Mumbai: In a move that is expected to encourage strategic mergers and acquisitions (M&A) and attract more foreign direct inflows into India, the Securities and Exchange Board of India (Sebi) permitted options for purchase and sale of securities in a share purchase agreement. The option (‘call or put option’) clause in a share purchase agreement all-ows an investor to buy additional stake or sell their stake to a third party at a future date on predetermined terms. This gives a higher degree of comfort level to foreign investors as it gives them an option to exit their investment if some thing were to seriously go wrong. According to experts, this is going to immensely benefit a large number of private equity firms and venture capital funds looking to invest in Indian companies. “Till now, the call and put option were considered as forward contracts which Sebi didn’t recognise. This was one of the major hurdles coming in the way of international investors looking at acquiring stake in Indian companies. The latest amendments would provide the much need comfort level to international investors and facilitate foreign investments,” commented R.S.Loona, managing partner, Alliance Corporate Lawyers and former executive director, Sebi. “The earlier clause was hurting genuine investors though the intent of the original legislation was to prevent unnecessary speculation. The latest amendments would give protection to private equity and other strategic investors, which is a big boost for joint ventures and strategic alliances,” noted Sandeep Parekh, founder, Finsec Law Advisors and former executive director, Sebi.