Kishore Biyani's Future Group, Vishal Retail and other retailers today said they might sell stake in subsidiaries to take advantage of the new foreign direct investment norms.
"We are looking for an opportunity to tie up with a foreign retailer as it will bring in the much-needed capital and expertise," said Manmohan Agarwal, chief executive of Vishal Retail. He did not name the foreign retailer with which the company might forge the partnership, but added, "The retailers in the West are not in a very good financial position. But as soon as the situation improves, we are sure to find a suitable partner."
According to sources in the Future Group, it plans to tie up with international retailers in different segments. "We can certainly look at bringing in foreign capital to our subsidiaries now," said a group official, who did not wish to be quoted.
Under the new guidelines, downstream investments by an Indian company that has foreign investment but is owned and controlled by Indians will not be considered as FDI.
The proposed changes come at a time when retailers are battling slowing sales, mounting inventory levels and drop in margins, besides the slowdown in the economy that has made shoppers defer their big-ticket purchases and go in for rampant down-trading.
Telecom
The overall cap for foreign capital in the telecom sector remains at 74 per cent, but Vodafone Essar and Bharti will be able to raise more FDI. This is because these two companies have substantial indirect foreign holding -- that is money invested through companies that are 'controlled and managed' by Indians. This was earlier classified as indirect FDI.
Sources close to Vodafone Essar said the UK company had foreign equity (both direct as well as indirect) of 52 per cent in the company, out of which around 10 per cent was held indirectly.
"Earlier, under the proportionate system of calculation of indirect equity, Vodafone had 10 per cent. Under the new policy, it is possible for the 10 per cent to become zero. So, Vodafone-Essar FDI would become only 42 per cent and it has leeway to get more foreign investment and money into the company," said the source.
In the case of Bharti, the indirect foreign holding in Bharti Airtel is even bigger. For instance, SingTel holds only 15.8 per cent in Bharti. However, it effectively holds 30.5 per cent (through indirect holdings in the parent company). The new definition again provides them with leeway to get more FDI without breaching the cap.
However, experts said the final impact could be ascertained only after the Centre released the fine print of the new policy.
Media
Television 18 chairman and managing director Raghav Bahl said, "For a listed company, the foreign investment among shareholders was indeterminable. It is not possible to compute the proportionate shareholding on a daily basis when company A is selling shares to company B as the foreign investment would change."
He does not expect the floodgates to open for foreign investments in media. "Some may want to invest but others may say that I am spending Rs 100 and getting only 26 per cent stake," he added.