Business Daily from THE HINDU group of publications
Monday, May 04, 2009
ePaper | Mobile/PDA Version | Audio | Blogs
Business Daily from THE HINDU group of publications Monday, May 04, 2009 ePaper | Mobile/PDA Version | Audio | Blogs |
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Mentor
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Stocks Columns - For the Asking Payment in shares The government seems to be keen on foreign suppliers being paid in shares of the Indian importing companies. Is it workable? Shyam Ponnappa, Chennai
Issue of shares as purchase consideration is nothing new. Only its renewed emphasis has something to do with the putative foreign exchange crisis. The Government seems to believe that payment in cash would be a drain on the foreign exchange reserves of the country. But then using shares as currency, as it were, is not an unmixed blessing. While it does ward off cash flow problems for both the company concerned as well as for the economy, it is fraught with serious if not dangerous implications. First, if it becomes de rigueur it could add inexorably to the share capital of the company diluting both the net worth of the company and the EPS. The bottom line would be disenchantment in the bourses with the shares of the company. It is for this reason that employees’ stock option is also sometimes decried. Second, the foreign suppliers are a discerning lot. They won’t lap up shares offered by all and sundry unless they see some strategic or tactical fit with the company whose shares are on offer. Even Indian promoters most of whom are allergic to interference the way they run their companies, may not take kindly to the idea because the one picking up sizeable stakes in the company inevitably starts demanding action and representation in the board of directors.
S. MURLIDHARAN More Stories on : Stocks | Forex | For the Asking
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