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No bar on Coke IPO, says Sebi chairman

Partha Ghosh

Securities and Exchange Board of India guidelines do not stop beverage giant Coca-Cola to come out with an initial public offer by July 2002, Sebi chairman DR Mehta told Business Standard on Friday.

"Sebi is also willing to forward its comments to the union finance ministry if required to do so," he said.

Coca-Cola's Indian holding firm Hindustan Coca-Cola Holdings Pvt Ltd had recently written to the Foreign Investment Promotion Board to waive the condition that requires it to make a public issue by July 2002.

One of the reasons Coke had cited to waive the condition was that owing to huge losses it would not be able to meet the Sebi rule which requires a company to show three-year profitability before making an IPO.

"Companies not meeting the profitability criteria can go through the book-building route for floating a public issue. Sixty per cent of the issued shares will have to be subscribed to by qualified institutional investors and the balance 40 per cent will be picked up by the public," Mehta said. The norms are laid under the disclosures and investor protection guidelines, he added.

Mehta also said that the government should be clear that multinational companies which entered India on the condition that they will list themselves on local bourses should not be exempt from such "entry conditions." Public issues by MNCs will boost up the market. If these companies can be listed on the NYSE, why not on the BSE?," Mehta said.

"The finance ministry has not approached us for our views on the Coca-Cola case. But we looked into it as a general matter and have no doubt that the company is eligible, and should meet the stipulated conditions," he said.

According to Prithvi Haldea of Prime, the country's leading primary market monitor, the profitability rider is only for making the public issue at a premium. "A loss-making company too can make an IPO, though it cannot charge a premium. It can sell the issue either at par or at a discount," he said.

The beverage giant has agreed on a condition stipulated by the government that its 100 per cent holding firm Hindustan Coca-Cola Holdings Pvt Ltd, will divest 49 per cent shareholding to resident shareholders through a public offer by July 2002.

Since 66 per cent of its Rs 33.08 billion investment was eroded, its book value had dropped from Rs 10 to Rs 3. Internal projections revealed that accumulated losses will be wiped out only by 2005-06. Coke said that pending consideration of the deletion of the waiver clause, the deadline for the IPO be put back to July 2007.

The department of economic affairs and the department of food processing industries, however, recommended rejection on the ground that the divestment clause was an entry level condition and "entry level conditions have to be adhered to."

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