Thursday, July 15, 2010

PRIVATE EQUITY TO FOLLOW FDI GUIDELINES

A customary practice among foreign private equity funds and overseas investors is to link the number of shares on conversion to the performance of companies in which they invest. A company which
does well has to convert less shares than one which misses performance milestones. In other words
promoters of firms that have performed badly will suffer significant dilution to their holdings. This sliding rule mechanism has now been questioned, thanks to changes in the FDI guidelines and the new method for calculation of floor price at which local companies and existing shareholders can sell their stocks to foreign investors.

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