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DEA softens on Coke's divestment waiver proposal

P Vaidyanathan Iyer, Subhomoy Bhattacharjee & Partha Ghosh

Coca-Cola's return to India required that the Atlanta-based firm would divest 49 per cent of its equity by July this year. The department of economic affairs is willing to reconsider its opposition to relax this entry condition.

Coca-Cola was granted permission to invest $700 million and buy out its franchise bottlers in June 1997. The firm had committed to dilute its shareholding in its fully-owned subsidiary through an initial public offering in five years.

"The company's agreement with the government pre-dates the policy on foreign direct investment in the food processing sector. The government has now allowed 100 per cent FDI in the sector through the automatic route," an official in the department said.

When Coca-Cola sought waiver or deferment of the divestment clause in October last year, it was rejected by the Foreign Investment Promotion Board at the behest of the department of economic affairs.

The department argued that entry conditions had to be followed. Commerce and industry minister Murasoli Maran defended it, saying that rules could not be changed for any particular company.

The food processing ministry and the department of industrial policy and promotion have said they have no objection to Coca-Cola's proposal. It is learnt that the case has been referred to the FIPB core group. In the last two meetings since Coca-Cola filed its application, the FIPB did not take up the case for consideration.

Now, the finance ministry feels the company's proposal has economic rationale.

If the department of the economic affairs supports, Coca-Cola will get a respite. An FIPB core group meeting is expected soon. Though the sectoral policy did not require the divestment clause, it was incorporated in the approval letter issued to Coca-Cola as the company was going to acquire 40-odd independent bottlers.

It had acquired the soft drink brands of Parle: ThumsUp, Gold Spot, Limca, etc.

Coca-Cola has now applied to the government for a waiver. Until a decision, Coca-Cola wants divestment to be deferred. It has given several delisting cases in the past one year to buttress its point.

It has said its accumulated losses may not make a public issue or a private placement attractive. The accumulated losses till March 31, 2001, stood at Rs 21.78 billion, against an investment of Rs 33.31 billion.

Pepsi operates in India through a fully-owned subsidiary. However, it is not bound by the divestment clause. A relaxation by the finance ministry in the case of Coca-Cola will have implications for companies with similar commitments. These include Esso Petroleum, Sodexho Pass, Total Petroleum, ELF Gas India Pvt Ltd and Shell India.

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