Reserve Bank of India
Exchange Control Department
Central Office
Mumbai 400 001
A.P.(DIR Series) Circular No.
53
December 17, 2003
To
All Authorised Dealers in Foreign Exchange
Madam / Sirs
Purchase/Sale of Shares and/or Convertible
Debentures by SEBI registered
Foreign Institutional Investors (FIIs) under Portfolio Investment Scheme
(PIS)
Attention of Authorised Dealers
is invited to Foreign Exchange Management (Transfer or issue of Security
by a Person Resident outside India) Regulations, 2000 issued vide Notification
No. FEMA.20/2000-RB dated May 3, 2000. In terms of Regulation 5(2) read
with clause 1 (1) of Schedule 2 thereof, a SEBI registered FII may apply
to the Reserve Bank for grant of permission to purchase shares or convertible
debentures of an Indian company under Portfolio Investment Scheme (PIS).
2. It has now been decided
to permit SEBI registered FIIs/ sub- accounts of FIIs to buy/sell equity
shares/debentures of Indian companies (excluding companies engaged in the
print media sector), units of domestic mutual funds,dated Government Securities
and Treasury Bills through stock exchanges in India at the ruling market
price, invest / trade in exchange traded derivative contracts, and also
to buy/sell shares and debentures etc. of listed/unlisted companies otherwise
than on stock exchange at a price approved by SEBI/ Reserve Bank as per
terms and conditions prescribed in the Annexure. For
the purpose of FII investment, Government Securities would include dated
securities of both Government of India and State Governments of all maturities
and Treasury Bills of Government of India. Investment in Government dated
securities and Treasury Bills by FIIs may be made either in the primary
market (at the auction/floatation) or in the secondary market. The investments
will be made subject to SEBI (FIIs) Regulations, 1995 modified by SEBI/Government
of India from time to time as published in the official Gazette of India.
3. The permission granted may
also be treated as Reserve Bank's permission under Section 6 of the Foreign
Exchange Management Act, 1999 to the investee company/ies for (a) registering
the transfer of shares / debentures etc.,in favour of the SEBI registered
FIIs/ sub-accounts of FIIs, and (b) for issue of shares on account of conversion
of debentures purchased by the SEBI registered FIIs/sub-accounts of FIIs.
4. Necessary amendments to
the Foreign Exchange Management (Transfer or issue of Security by a Person
Resident outside India) Regulations, 2000 issued vide Notification No. FEMA.20/2000-RB
dated May 3, 2000 are being issued separately.
5. Authorised Dealers may bring
the contents of this circular to the notice of their constituents concerned.
6. The directions contained
in this circular have been issued under Sections 10(4) and 11(1) of the
Foreign Exchange Management Act, 1999 (42 of 1999).
Yours faithfully
F.R.Joseph
Chief General Manager
ANNEXURE
{AP (DIR Series) Circular No.
53
dated December 17, 2003}
1. A SEBI registered FII /
approved sub-account is permitted to open a Foreign Currency denominated
Account and / or a Special Non-Resident Rupee Account and to transfer sums
from the foreign currency account to the rupee account for making genuine
investments in the securities in terms of the SEBI (FIIs) Regulations, 1995.
The sums may be transferred from foreign currency account to rupee account
at the prevailing market rate and the Authorised Dealer may transfer repatriable
proceeds (after payment of tax) from the rupee account to the foreign currency
account.
2. The Special Non-Resident
Rupee Account may be credited with the proceeds of sale of shares / debentures,
dated Government securities, Treasury Bills etc., dividend, income received
by way of interest, forward contracts booked etc., by compensation received
towards sale / renouncements of right offerings of shares and income earned
on securities lent under SEBI’s Securities Lending Scheme, 1997 after deduction
of appropriate tax, if any subject to the condition that the Authorized
Dealer should obtain confirmation from the investee company/FII concerned
that tax at source, wherever necessary, has been deducted from the gross
amount of dividend / interest payable/ approved income to the share / debenture
/ Government securities holder at the applicable rate, in accordance with
the Income Tax Act.
3. The Special Non-Resident
Rupee Account may be debited for purchase of shares / debentures, dated
Government securities, Treasury Bills etc., and for payment of fees to applicant
FIIs’ local Chartered Accountant/Tax Consultant where such fees constitute
an integral part of their investment process.
4. The SEBI registered FII/sub-account
is/are permitted to purchase shares/convertible debentures of an Indian
company through offer/private arrangement subject to the applicable ceiling
and the Indian company is permitted to issue such shares provided that:
(i) in the case of public
offer, the price of shares to be issued is not less than the price at
which shares are issued to residents and
(ii) in the case of issue
by private placement, the price is not less than the price arrived at
in terms of SEBI guidelines or guidelines issued by the erstwhile Controller
of Capital Issues, as applicable. Purchases can also be made of PCDs/FCDs/Right
Renunciations/Warrants/Units of Domestic Mutual Fund Schemes.
5. FII shall not engage in
short selling and shall take delivery of securities purchased and give delivery
of securities sold. There shall be no squaring off of transactions during
the no-delivery period of a security.
6. The SEBI registered FII
shall restrict allocation of its total investment between equities and debt
in the Indian capital market in the ratio of 70:30. The FII may form a 100%
debt fund and get such fund registered with SEBI.
7. The purchase of equity shares
by a single SEBI registered FII/sub-account in each company shall not exceed
10% (ten percent) of the paid-up equity capital of the company. The purchase
of equity shares by each foreign corporate and foreign individual shall
not exceed 5% of the paid-up equity capital of the company within the overall
aggregate limit of 24% or the sectoral cap / statutory ceiling, as applicable.
These limits shall include acquisition of shares in primary / secondary
market.
8. SEBI registered FII may
trade in all exchange traded derivative contracts on the stock exchanges
in India subject to the position limits as prescribed by SEBI from time
to time. The SEBI registered FII/sub-account may open a separate sub-account
of their Special Non-Resident Rupee Account through which all receipts and
payments pertaining to trading/investment in exchange traded derivative
contracts including initial margin and mark to market settlement, transaction
charges, brokerage etc., will be made. Further transfer between the Special
Non-Resident Rupee Account and the sub account maintained for the purpose
of trading in exchange traded derivative contracts can be freely effected.
However, repatriation of the rupee amount will be effected only through
their Special Non-Resident Rupee Account subject to payment of relevant
taxes. The Authorised Dealer may keep proper records of the sub account
and submit them to Reserve Bank as and when required.
9. SEBI registered FIIs/sub-accounts
may keep with the Trading Member/ Clearing Member amount sufficient to cover
the margins prescribed by the Exchange / Clearing House and such amounts
as may be considered necessary to meet the immediate needs.
10. A daily statement in respect
of all transactions (except derivative trade) should be submitted in floppy/soft
copy in the prescribed format directly to the Chief General Manager, Exchange
Control Department, Reserve Bank of India, Foreign Investment Division,
Central Office, Central Office Building, Mumbai 400 001 to monitor the overall
ceiling/sectoral cap/statutory ceiling. When the total holdings of FIIs
reach within 2% of the applicable limit, Reserve Bank will issue a notice
to all designated branches of Authorised Dealers stating that any further
purchases of shares of the said company require prior approval of Reserve
Bank. No purchases shall be made once the prescribed overall ceiling/sectoral
cap/statutory limit is reached.