Cargill Capital & Financial Services India faces revocation of its Non-Banking Financial Company (NBFC) status unless it brings in additional equity by September 2. The Foreign Investment Promotion Board (FIPB) has rejected its application for extension of the deadline to bring in $41.7 million as foreign direct investment from its Netherlands-based parent, Cargill Holdings BV. The company needs the money to meet the capitalisation norms.
The company’s certificate of registration is under Reserve Bank of India’s review. Its operations began on September 3, 2007, and it was required to infuse the balance equity of $41.7 million within two years to meet the specified norm of $50 million. The company had sought an extension of two more years, until September 2, 2011. When asked, a Cargill India spokesperson said, “We have so far not received any government intimation. It is a multi-ministry issue, on which we have not heard anything till now.”
Cargill is a US-based international provider of food, agricultural and risk management products and services. Its Netherlands arm was established in 1959 as a commodity trading operation which diversified into production of food ingredients and the processing, distribution and trading of a variety of agricultural products.
While the company had cited global slowdown as the reason for seeking extension, the FIPB decision was based on the department of economic affairs’ objection that “there was no compelling case for extension of the deadline for capitalisation of up to $50 million and any dilution can cause a deluge (of other applications)”. The rejection came despite the department of industrial policy and promotion stating that the case warranted “sympathetic consideration in view of the severity of the downturn in the global economy”.
Cargill Holdings had put in $8.25 million equity till June 2006 but after that no further infusion has taken place. The company’s application said that due to global market changes since September 2008, the company’s parent and management “deem it appropriate” to defer the infusion of the balance capital of $41.75 million to a later date, though the management and parent of the company were committed to its operations in India and would be putting in the additional sum once an extension was granted.
Though 100 per cent FDI is allowed in NBFC activities under the automatic approval subject to sectoral rules, they are required to meet the minimum capitalisation norms. The case was put up for FIPB approval since there was no precedent of seeking an extension for equity infusion.