India's Godfrey Phillips says not violating country's foreign investment rules

Godfrey Phillips India

11/03/2019 10:33

By Aditya Kalra
    NEW DELHI, March 11 (Reuters) - Indian cigarette
manufacturer Godfrey Phillips  GDFR.NS  on Monday said it was in
compliance with the country's foreign direct investment (FDI)
rules, following a Reuters article that alleged it circumvented
the laws.
    Philip Morris has for years paid manufacturing costs to
Godfrey Phillips to make its Marlboro cigarettes, circumventing
a nine-year-old government ban on foreign direct investment in
the industry, Reuters reported last week based on a review of
dozens of internal company documents, which were dated between
May 2009 and January 2018. (https://reut.rs/2NIlHD8)
    After the story was published, a senior official at India's
main financial crime-fighting agency said Philip Morris and
Godfrey were being probed for alleged violation of the country's
laws. The scope of the investigation, the source added, was much
broader than the alleged law violations highlighted in the
Reuters story.  urn:newsml:reuters.com:*:nL3N20V2IZ
    On Monday, Godfrey told India's National Stock Exchange "the
suggestion of alleged violation of the FDI laws of India is
completely misconceived and misplaced".
    Godfrey's stock rose as much as 10 percent from Friday's
close.
    India in 2010 prohibited FDI in cigarette manufacturing,
saying this would enhance efforts to curb smoking.
    Ahead of the ban, Philip Morris formed a new wholesale
trading company with Godfrey. Since then, Godfrey has acted as a
contract manufacturer of Marlboro cigarettes in India, while
Philip Morris's local unit acts as a wholesale trading company
and promotes the brand.
    Godfrey told the stock exchange on Monday it had entered
into a commercial arrangement with Philip Morris' local unit to
manufacture Marlboro cigarettes in May 2009, a year before the
May 2010 FDI ban.
    "The commercial arrangement referred to above is in complete
compliance with the extant regulations governing the FDI laws in
India," the company said.
    Dozens of internal company documents reviewed by Reuters
showed Philip Morris has been indirectly paying costs related to
Marlboro cigarette manufacturing in India in a phased manner.
    Three former officials and one former head of India’s
Enforcement Directorate had reviewed the Philip Morris documents
for Reuters and said the dealings should be investigated for
circumventing India’s foreign investment rules.

 (Additional reporting by Aditi Shah and Bengaluru newsroom;
Edited by Martin Howell and Christian Schmollinger)
 ((aditya.kalra@thomsonreuters.com; +91-011-49548021; Reuters
Messaging: aditya.kalra.thomsonreuters.com@reuters.net (Twitter:
@adityakalra))