Cos may soon get to pay in stock abroad

THE PLANNED EXERCISE WILL HELP CASH-STRAPPED FIRMS PUT THEIR EXPANSION PLANS BACK ON TRACK

THE government is examining a proposal to allow companies to use equity shares instead of cash for important payments abroad, including technology transfer, import of capital goods and interest on foreign debt, a government official said.
    The government also plans to allow Indian companies to enter into share-swap deals with foreign firms for mergers and acquisitions, as it looks to help cash-strapped companies expand their businesses and liberalise foreign direct investment (FDI) norms, an official in the commerce & industry ministry said on condition of anonymity.
    According to the official, the ministry has already drafted a policy note in this regard, and plans to issue an official notification soon after a new government assumes office.
    "The government would allow capitalisation of import payables by liberalising the existing policy," the official said. While companies would not be allowed to issue fresh capital for such cashless deals, they would be allowed to transfer equity shares of group companies that are not party to the deal. If cleared, the proposal would allow companies to issue shares against import of capital goods, components, kits, spare parts, technology transfer, interest on external commercial borrowings (ECBs) and commission brokerage.
    In case of joint ventures, Indian companies can transfer shares to their foreign partners for meeting their share of capital and other developmental expenses as well as preliminary expenses for setting up of a new business. But the government would not allow issue of shares against intangible assets such as goodwill, copyrights, franchise rights and patents, the official said. Cos may need to stick to FDI limits
AS PER the proposal, all transactions would be valued in cash, and Customs and other applicable duties will be charged as per norms.
    Also, companies would have to follow pricing norms and other regulations of stock market regulator Sebi while paying in equity to foreign companies. They would also need to adhere to sector-wise FDI limits, the official said.
    Trade experts ET spoke to said that if the government facilitates, cashless transactions would go a long way in addressing a severe liquidity crunch that has forced several companies to curtail their expansion plans.
    rajat.guha@timesgroup.com