Para 2.18
- Document type
- Policy
- Dated
- Category
- Policy
Preference Shares
- 2.18
- Foreign investment through preference shares is treated as foreign direct investment. Proposals are processed either through the automatic route or FIPB as the case may be. The following guidelines apply to issue of such shares:-
- Foreign investment in preference share are considered as part of share capital and fall outside the External Commercial Borrowing (ECB) guidelines/cap
- Preference shares to be treated as foreign direct equity for purpose of sectoral caps on foreign equity, where such caps are prescribed, provided they carry a conversion option. If the preference shares are structured without such conversion option, they would fall outside the foreign direct equity cap.
- Duration for conversion shall be as per the maximum limit prescribed under the Companies Act or what has been agreed to in the share holders agreement whichever is less.
- The dividend rate would not exceed the limit prescribed by the Ministry of Finance.
- Issue of Preference Shares should conform to guidelines prescribed by the SEBI and RBI and other statutory requirements.