As per the regulatory requirement and notification issued by the Reserve bank of India, in case of inbound transactions there is a regulatory need to undertake the valuation either from a Chartered Accountant or from a merchant banker. Regarding the pricing guideline as per the notification RBI/2014-15/129 A. P. (DIR Series) Circular No. 4 RBI/2014-15/129, the issue and transfer of shares including compulsorily convertible preference shares and compulsorily convertible debentures with or without optionality clauses shall be at a price worked out as per any internationally accepted pricing methodology on arm’s length basis.
Regarding the valuation methodology noting categorically has been prescribed but it shall be undertaken as per the internationally accepted pricing guidelines and the valuator need to undertake it as per the best suited method after looking into the business model, stage of business, future potential, sector issues and macro economic factors beside the financial parameters. This valuation need to be filed with RBI before making any allotment of shares to foreign investors. The price evaluated by the valuator shall govern to be the minimum price for issuance of shares to foreign investor. The valuator shall be providing the minimum value of the company and the allotment shall be made above this minimum threshold value.
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