Pepsi gets breather on selloff

  • Gaurav Choudhury, Hindustan Times, New Delhi
  • |
  • Updated: Jun 08, 2007 21:46 IST

The Foreign Investment Promotion Board (FIPB) on Friday deferred a decision on beverage giant PepsiCo’s application for a waiver of regulations that require it to divest 49 per cent stake in its bottling subsidiaries in India.

PepsiCo has sought a waiver from a clause that it would have to offload 49 per cent in its bottling subsidiaries, which it acquired in 2002. The clause, which was agreed upon by PepsiCo, specifies that the beverage company would have to reduce its stake in the bottling subsidiaries to 51 per cent within five years.

The reasons for the deferment were not immediately known. Sources, who did not wish to be identified, said the government was reviewing the mandatory divestment conditions in Indian subsidiaries across sectors. This is part of the overall review of the foreign direct investment (FDI) regime.

With an FDI target of $30 billion for the current financial year, the imperative to re-define parameters was being felt in the government, officials said.

The clause on mandatory divestment in some sectors, including beverage bottling, was inserted later as a measure of protection for the domestic entrepreneur.

Rival beverage giant Coca-Cola had divested up to 49 per cent in its Indian bottling subsidiary Hindustan Coca Cola, in accordance with the same mandatory divestment clause. Source, however, said, subsequently, it had bought back some amount of the shares and a waiver was granted for the purpose.

Sources said in the reviewed FDI policy, the government was most likely to drop the mandatory divestment condition. It has been argued that the divestment let to foreign exchange flight from the country and was also not consistent across sectors. It is mandatory for some companies, including beverage bottling subsidiaries, but has been waived for e-commerce companies.

 

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