RBI eases norms on share issue against capital goods import

The Reserve Bank of India (RBI) on Thursday said equity and preference shares could be issued to overseas parties, in cases dealt by the Foreign Investment Promotion Board (FIPB), for money payable for importing capital goods and pre-operative expenses.

Foreign direct investment (FDI) in activities not covered under the automatic route requires prior approval of the government. Such proposals are considered by FIPB. The existing norms for issuing equity and preference shares under the government route had been reviewed, RBI said in a communication to banks.

These shares can also be issued for payments relating to import of second-hand machinery. These imports must carry an independent valuation report from a third party entity. The independent valuer should be preferably from the country from which goods are imported.

All conversions of import payables for capital goods into FDI should be completed within 180 days from the date of shipment, RBI said.

The shares can also be issued for pre-operative or pre-incorporation expenses. These expenses include payment of rents as well. The statutory auditor must certify the pre-incorporation and pre-operative expenses. The payments should be made directly by the foreign investor to the company.

Payments made through third parties citing the absence of a bank account or similar such reasons are not eligible for issuance of shares towards FDI. The capitalisation should be completed within the 180 days permitted for retention of advance against equity, RBI added.

Under the automatic route, an Indian company can issue equity and preference shares to a person residing outside India who provides the technological or technical know-how. These shares can also be issued against royalty and lump sum fees due for payment. The issuance of shares is subject to entry route, sectoral cap, pricing guidelines and compliance with tax laws.

Source: Business Standard