By Aditya Kalra
NEW DELHI (Reuters) - Indian cigarette manufacturer Godfrey Phillips 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 (NYSE:PM) 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.
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.