The government today allowed companies to issue equity against import of capital goods instead of cash payments, a development that will make it easier for companies to conduct their business.
"The government has now decided to permit issue of equity, under the government route, in the following cases...(a) import of capital goods/machinery/ equipment (including second-hand machinery), (b) pre-operative/ pre-incorporation expenses (including payments of rent etc)," the 'Consolidated FDI Policy' released today said.
As per the present arrangement, only External Commercial Borrowings, or lump-sum fee, or royalty can be converted into equity.
"This move will help ease conducting business for companies," SMC Globals Head of Research Jagannadham Thunuguntla said.
Further, the government also eased rules for companies looking to issue convertible instruments, by allowing them to fix the issue price on the date of issue itself.
"Instead of specifying the price of convertible instruments upfront, companies will now have the option of prescribing a conversion formula, subject to the FEMA/ Sebi guidelines on pricing," the circular said.
It added that this would help the recipient companies in obtaining a better valuation based upon the issuer firm's performance.
