Can Zomato Existing Foreign Investors Subscribe to its IPO: Banks to RBI, SEBI

In the run-up to the Zomato IPO, several banks have approached Reserve Bank of India (RBI) and Securities and Exchange Board of India (Sebi) to figure out whether existing foreign investors in the company can participate in the maiden equity offering.

Multiple overseas investors in Zomato, who are keen to subscribe to the Rs. 8,250 crore IPO, are grappling with a regulatory question –thanks to a 2019 rule which on a plain reading means that a foreign investor cannot invest in shares of the same company through both the foreign direct investment (FDI) and foreign portfolio investment (FPL) routes, a foreign investor buying shares of an unlisted company brings in fund under FDI regulations; but while subscribing to an IPO it has to take the FPI route. The question is can it do both?

“Many foreign investors in Zomato are enquiring with bank. They want to put money in the IPO. It will make things easier if the regulators clarify (on whether a foreign investor must stick to one route) before the IPO opens,” a person familiar with the subject told ET.

The ambiguity stems from the Foreign Exchange Management (Non-debt Instruments) Rules of October 2019, which among other things states;” A person resident outside India may hold foreign investment either as FDI or as FPI in any particular Indian company.”

The online food delivery and restaurant discovery platform is yet to announce the IPO launch date, but there have been media speculations that the company may hit the market this month.

“We understand that the intent of the law may not be to discourage FPI investment. But FEMA is a prescriptive law and few multinational banks would interpret it beyond a point due to compliance,” said a senior banker who is not connected with the IPO. S-ET

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