Docomo rejection leads to India looking at regulations

The finance ministry in India is to look at its call and put option rules following the Reserve Bank of India's rejection of Docomo's share sale to Tata.

The government of India is to look into the rules that led to the rejection of Japan-based telecommunications company NTT Docomo's sale of shares to India-based holding company Tata Sons.

The rules led to the rejection of Docomo's proposal to sell shares to Tata at a pre-agreed price as an exit to their joint venture. The deal was intended to go through five months ago.

The rejection has led to the finance ministry looking at ways to allow deals such as these, known as “call and put options”, to happen although it would require more flexibility in the regulations.

A senior government official, speaking to the Economic Times, said: "There are issues with pricing of quasi-equity instruments... We are examining the norms."

Changes to these rules have been made in the past. In 2011 the Department of Industrial Policy and Promotion banned them but quickly reversed its decision when fears arose that it could slow down foreign investment. In 2013 the Reserve Bank of India, the finance ministry, the Securities and Exchange Board of India and the Department of Industrial Policy and Promotion came to an agreement that they could be allowed with a one-year lock-in after adhering to pricing norms.

In 2014 the Reserve Bank of India said any internationally recognised pricing methodology would be accepted. However, it was the body that ruled over the Docomo–Tata case and rejected the sale further confusing the situation.

See more from this Government Report: India

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