How are prices determined for shares issued by Indian companies?

The issuance of shares by Indian companies falls under the compliance guidelines outlined in the Foreign Exchange Management Act (FEMA). Companies seeking capital through the public route should base the issuance price on Securities and Exchange Board of India (SEBI) guidelines. Unlisted companies seeking capital may not issue private shares at a price less than fair value based on the discounted cash flow method, and price will be determined by a SEBI registered merchant or chartered accountant. The acquisition of unlisted shares by a non-resident from an Indian resident must be exchanged at market price based on the SEBI guidelines.

Units operating in Special Economic Zones (SEZs) may issue shares at a price based on the valuation against the import of capital goods. This valuation must receive approval from a Development Commissioner Committee and the appropriate customs officials. Shares must be officially issued within 180 days of receipt of invested capital, or the funds must be refunded to investors.

Upon the issuance of shares to foreign investors, whether located inside or outside SEZ, the issuing company has 30 days to file Form FC GPR, which outlines the company’s activities and relevant details, through the appropriate regional office of the Reserve Bank of India (RBI). A certificate declaring compliance with the Companies Act 1956 and Companies Act 2013, as applicable from time to time shall be submitted at the same time. The issuing company shall also obtain a certificate confirming the price of issue is in line with the prescribed guidelines.