PEs await RBI norms on deals with put-and-call options
Real Estate

PEs await RBI norms on deals with put-and-call options

Private Equity investors are awaiting detailed guidelines from the Reserve Bank of India (RBI) on their investment in real estate sector, which involves put-and-call options.

Some reports suggest that over the last six years, private equity deals in real estate worth $5-billion were stranded because RBI thought these contracts with put-and-call options and offering a guaranteed return were considered illegal or considered to be masquerading debt in the form of equity.

It remains to be seen whether RBI changes its views on these contracts with the government legalising such investment.

Reports suggest that the RBI may ask investors to follow a one year lock-in period before invoking the exit option and also ask them to bear performance-risk for entry into the sector as a whole.

RBI questions these deals because it believes that these investments were largely debt used to circumvent external commercial borrowings (ECB) rules, which otherwise are not allowed in the real estate sector.

Private Equity investors are awaiting detailed guidelines from the Reserve Bank of India (RBI) on their investment in real estate sector, which involves put-and-call options. Some reports suggest that over the last six years, private equity deals in real estate worth $5-billion were stranded because RBI thought these contracts with put-and-call options and offering a guaranteed return were considered illegal or considered to be masquerading debt in the form of equity. It remains to be seen whether RBI changes its views on these contracts with the government legalising such investment. Reports suggest that the RBI may ask investors to follow a one year lock-in period before invoking the exit option and also ask them to bear performance-risk for entry into the sector as a whole. RBI questions these deals because it believes that these investments were largely debt used to circumvent external commercial borrowings (ECB) rules, which otherwise are not allowed in the real estate sector.

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