According to sources, in a letter to the finance ministry,
RBI has asked the government for downside protection to foreign investors upon their exit- the move comes after Tata Sons moved the Central Bank in the Docomo natter.
Following are the details
Q: Isn't this is a significant departure from the Reserve Bank of India’s (RBI’s) stated position which basically was that there should be no assured or guaranteed returns to investors and there must be fair market value determined at which the transaction must indeed go through and post the representation by the Tatas in the Docomo matter the RBI has now written to the finance ministry seeking a relaxation of those rules.
A: In fact that has been the stated position of the RBI for many years which was formalised in a notification that had come as recently as last year when it had pretty much banned assured returns, banned minimum guarantees for agreements entered into by Indian promoters and foreign investors. So, therefore this is a significant departure - saying that there must be a protection of downside
investments which is of course a fancy terminology for an assured return.
All coming after Tata Sons actually made a representation to the Central Bank asking if it could buy back entity Docomo’s 124 crore odd shares at a predetermined rate of about Rs 58 a share. Interestingly Tata Sons also writing in that letter that it engaged PWC and PWC has determined that a fair price value of each share value is actually Rs 23.
Post that as recently as December 22, RBI has written to the finance ministry saying larger than the assured return issue is to actually honour fair commitments that have been made in contracts is to protect downside investments and doesn’t just stop there.
Normally one would perhaps expect this to come in from the finance ministry but RBI actually writing to the finance ministry and saying let us also keep in view that Japan is becoming a strategic investor partner of India and there are large FDI inflows that are at stake.
However, this proposal is not only for Tatas and entity Docomo but it is for the industry at large because sources indicate that in that very communication, RBI has also written to the finance ministry that this should be the new principle - while determining exits whether there are fair commitments that are in contract, whether there is a downside investment that needs to be protected. So, of course a significant departure, good news for all the private equity players, foreign investors that want to exit and once you have clarity on exits you should have more foreign inflows.
RBI has asked the government for downside protection to foreign investors upon their exit- the move comes after Tata Sons moved the Central Bank in the Docomo natter.
Following are the details
Q: Isn't this is a significant departure from the Reserve Bank of India’s (RBI’s) stated position which basically was that there should be no assured or guaranteed returns to investors and there must be fair market value determined at which the transaction must indeed go through and post the representation by the Tatas in the Docomo matter the RBI has now written to the finance ministry seeking a relaxation of those rules.
A: In fact that has been the stated position of the RBI for many years which was formalised in a notification that had come as recently as last year when it had pretty much banned assured returns, banned minimum guarantees for agreements entered into by Indian promoters and foreign investors. So, therefore this is a significant departure - saying that there must be a protection of downside
investments which is of course a fancy terminology for an assured return.
All coming after Tata Sons actually made a representation to the Central Bank asking if it could buy back entity Docomo’s 124 crore odd shares at a predetermined rate of about Rs 58 a share. Interestingly Tata Sons also writing in that letter that it engaged PWC and PWC has determined that a fair price value of each share value is actually Rs 23.
Post that as recently as December 22, RBI has written to the finance ministry saying larger than the assured return issue is to actually honour fair commitments that have been made in contracts is to protect downside investments and doesn’t just stop there.
Normally one would perhaps expect this to come in from the finance ministry but RBI actually writing to the finance ministry and saying let us also keep in view that Japan is becoming a strategic investor partner of India and there are large FDI inflows that are at stake.
However, this proposal is not only for Tatas and entity Docomo but it is for the industry at large because sources indicate that in that very communication, RBI has also written to the finance ministry that this should be the new principle - while determining exits whether there are fair commitments that are in contract, whether there is a downside investment that needs to be protected. So, of course a significant departure, good news for all the private equity players, foreign investors that want to exit and once you have clarity on exits you should have more foreign inflows.
