CCPS: Does Issuing It Trigger a Valuation, and When?

• CCPS is a preference share that must convert into equity shares. It cannot stay a preference share forever and it cannot be redeemed for cash instead.
• Investors like it because it behaves like debt on the way in (defined terms, sometimes a preference dividend) and like equity on the way out (conversion, upside participation).
• Under FEMA, CCPS counts as an equity instrument, not debt, precisely because the conversion is mandatory. This is what lets a foreign investor use it without running into External Commercial Borrowing restrictions.

• There is no dedicated CCPS section in the Companies Act, 2013.
• Section 43 only says a company can have preference share capital. Section 55 governs redeemable preference shares and their 20-year cap. Neither is written with CCPS in mind.
• Market practice treats the 20-year cap as applying to CCPS conversion too, by analogy, since the Act does not say otherwise and nobody wants to issue an effectively permanent instrument.

• Section 62(1)(c) of the Companies Act covers equity shares and securities convertible into equity shares. CCPS is squarely a convertible security.
• Rule 13(2)(g) of the Companies (Share Capital and Debentures) Rules, 2014 requires a registered valuer's report before the price of any preferential-basis issue is fixed. The rule does not distinguish between equity and convertible preference shares.
• There is no separate CCPS valuation regime under the Companies Act. It rides the same statutory trigger as a plain equity preferential allotment, the broader point covered in Preference Shares Are an SFA Valuer's Job. Redemption Isn't..

• Rule 13(2)(h) is specific to convertible securities. It offers a choice for pricing the equity shares that eventually come out of conversion.
• Upfront pricing (Rule 13(2)(h)(i)): price the resultant shares now, based on a valuation report obtained at the time the CCPS is offered.
• Deferred pricing (Rule 13(2)(h)(ii)): price the resultant shares later, using a valuation report dated no earlier than 60 days before the conversion entitlement date, with the board's pricing decision taken no earlier than 30 days before that date.
• This choice has to be made and disclosed at the time of the original offer. A company cannot leave it open to decide later which path it will take.
• Plain equity has no equivalent, because there is no conversion event to defer anything to.

An investor puts in ₹5 crore via CCPS. At issuance, the company is valued at ₹100 per share.

Upfront pricing: ₹5 crore ÷ ₹100 = 5,00,000 shares, fixed today. If the company grows to ₹250 per share by the conversion date, those 5,00,000 shares are now worth ₹12.5 crore. If the company falls to ₹40 per share, the same 5,00,000 shares are worth only ₹2 crore. The investor is exposed to the company's performance from day one, like a regular shareholder.

Deferred pricing: nothing is fixed today except the formula, ₹5 crore ÷ (fair value per share at conversion). If the fresh valuation at conversion says ₹250 per share, the investor gets 2,00,000 shares, worth exactly ₹5 crore. If it says ₹40 per share, the investor gets 12,50,000 shares, again worth exactly ₹5 crore. Either way, the investor's rupee value at conversion comes out the same: what they put in.

• Upfront pricing locks in the investor's entry price and the founder's dilution number at issuance. Founders who expect strong growth tend to prefer this, since it caps how much of the company the investor's money buys.
• Deferred pricing protects the investor's capital against the company's price movement between issuance and conversion. Investors who are unsure how the next few years will go tend to prefer this.
• Either way, a registered valuer is involved. The only question the law leaves open is when: once at issuance, or once close to conversion.

A CCPS round rarely leaves a cap table with just one class of shares. Once there are several classes with different rights, the practical question shifts from "what is the company worth" to "how is that worth split between classes," covered in Startup Valuation Methods: Deal Heuristics vs. Fair Value Reporting.

All of the above governs unlisted, privately held companies issuing CCPS on a preferential basis. Listed companies price preferential issues under SEBI's ICDR Regulations instead, and Rule 13 does not apply to them at all.

• Frequently traded shares: no valuer at all. The floor price is a market-price formula: the higher of the 90-trading-day or 10-trading-day volume-weighted average price before the pricing date.
• Infrequently traded shares: since there is no reliable market price to formula off, SEBI requires the floor price to be set by an IBBI-registered valuer's report, the same population of professionals, and the same Section 247 definition, as the unlisted-company Rule 13 regime.