FDI Valuation: Why Foreign Investment Cannot Be Priced Arbitrarily

A promoter and a foreign investor may agree commercially on a share price, but agreement alone does not settle FEMA compliance. Before accepting money, identify the transaction direction, the instrument and the valuation requirements that apply.

Generic office building, illustrating business funding and planning

Image: Side of office building by Alanthebox; CC0 1.0. Unmodified, illustrative photograph.

The pricing direction matters

For ordinary unlisted-company transactions under NDI Rule 21, issue to a non-resident and resident-to-non-resident sale generally have a valuation floor; non-resident-to-resident sale generally has a ceiling. Certification uses an internationally accepted arm’s-length methodology by a prescribed professional. The rule contains exceptions, including non-repatriation investments and specified SEBI pricing cases.

RBI paragraph 8.11 requires a pricing certificate no older than 90 days at investment, except where SEBI determines pricing. These are compliance boundaries, not a Government endorsement of the business value.

Build a defensible valuation brief

Provide the valuer with reconciled financial statements, a current capitalisation table, outstanding convertibles, debt and cash balances, and management-approved projections. Explain unusual revenue, promoter-related expenses, contingent liabilities and expansion expenditure.

An illustrative ₹100 crore enterprise value is not necessarily ₹100 crore for shareholders. If the agreed bridge deducts ₹25 crore of debt and adds ₹5 crore of eligible cash, equity value becomes ₹80 crore before other adjustments. The valuation report and transaction documents must use compatible definitions.

Questions to resolve before signing

  • Is the investor subscribing for new shares or buying existing shares?
  • Does the report value ordinary equity or the actual preference rights being issued?
  • Are projections consistent with production capacity and working-capital needs?
  • Who bears changes in debt or cash between signing and completion?
  • Will a delayed closing require refreshed valuation evidence?

Do not instruct a valuer to reverse-engineer an unsupported number simply to fit a negotiated dilution percentage. If the commercial price and applicable boundary conflict, revisit price, instrument or deal structure with the transaction professionals.

Keep the evidence together

Maintain one closing file containing the report, financial inputs, approvals, signed agreements and bank correspondence. Ask the authorised dealer bank to review document readiness early. Tax and Companies Act requirements may call for separate analysis; a FEMA certificate should not be assumed to answer every valuation question.

Connect with Monei Matters

Contact Monei Matters to organise valuation inputs and documentation for a proposed foreign investment.

Monei Matters
B-9, Near City Centre Market, Ramprastha, Ghaziabad, Uttar Pradesh 201011
Phone: +91 93138 03227 / +91 93110 03227
Website: www.moneimatters.com

Services include business finance, working capital, commercial mortgage/LAP, lease rental discounting, debt syndication, restructuring, settlements, FDI advisory and equity syndication.

Disclaimer

General information based on sources reviewed for the position as at 10 September 2026; not transaction-specific legal, tax or investment advice. Illustrations are hypothetical. Applicable law, documents and lender or investor terms govern each case; funding and settlement outcomes are not guaranteed.

Sources

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