New
Delhi: The
central government has said companies can now use proceeds
from external commercial borrowings to invest in the real
estate of other domestic companies. But the funds cannot
be used to acquire stakes in those companies.
The government has issued
a notification in this regard saying proceeds from external
commercial borrowings as well as those from ADRs and FCCBs could be
used to buy shares of public sector companies in the course of
their disinvestment.
This has been done to
encourage foreign direct investment in new properties instead of
companies paying a higher premium for properties in prime
locations.
The finance ministry
clarification means that while a company can buy assets, it will
not be allowed surrogate transfer of ownership by using the
proceeds from external commercial borrowings.
While
the finance ministrys position has prevented the possibility of
companies using the foreign direct investment avenue in any other
sector to set up a concern and then seek permission to avail
external commercial loans for funding the takeover of other going
concerns, it has allowed them to invest proceeds from external
commercial borrowings to fund their horizontal expansion
programmes.
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