Kerns Manufacturing gets FIPB clearance; to supply expertise instead of cash

New Delhi: Overruling objections from the Department Of Industrial Policy & Promotion (DIPP), the Foreign Investment Promotion Board (FIPB) has allowed US-based Kerns Manufacturing to pick up a 25% stake in its Indian arm by foregoing cash infusion in lieu of high-value machinery, technical know-how and training of key personnel.

The Indian venture of Kerns, Kerns Aeroproduct, is being set up for the manufacture of aircraft and spacecraft spares. As per its proposal, American parent Kerns Manufacturing will provide technical, managerial, marketing and HR support to Kerns Aeroproducts in lieu of cash. The proposal has received the go-ahead from the Department of Space as well as the civil aviation ministry. The ministry, however, has said that its approval is subject to the company meeting criteria as laid down by the Directorate General of Civil Aviation (DGCA).

DIPP had argued that Kerns should not be allowed to pick up stake in the Indian venture without actual infusion of funds. The FIPB, in turn, decided to approve the proposal on a case-to-basis.

The proposed paid-up equity of Kerns Aeroproducts is Rs2.3 crore, consisting of 23 lakh shares out of which 25% (5.75 lakh shares) would be allotted to Kerns Manufacturing. The Indian promoters of Kerns Aeroproducts will hold the remaining 75% equity, that is the Shivkumar Reddy Group (40%) and the Babu Group (35%). While the Babu Group is engaged in mechanical engineering and fabrication, the Shivkumar Reddy Group is engaged in the distilleries business. The two will operate jointly under the name SBG.

In clearing the proposal, sources said that the FIPB was taking a 'constructive view' of the proposal.
 
The FIPB has cleared the Kerns proposal subject to three conditions. For manufacturing parts of civilian aircraft in India, the company will need to obtain approval of DGCA in accordance with the Civil Aviation Requirement (CAR). The joint venture should also meet licensing and security requirements, and further that the company would not undertake manufacturing of any item covered under defence sector under Press Note 2 of the 2002 series.