In a move that could ease entry of foreign companies into India, the government may review the policy of imposing a disinvestment clause on foreign companies in key sectors such as petroleum, food processing and chemicals. The finance ministry is taking up the matter and will invite comments from various ministries before changing the policy.
The food processing ministry will comments on the recent issue of mandatory disinvestment in bottling operations for Pepsi. British Gas faced a similar problem but was later exempted from divestment from FIPB.
Pepsi had urged the Foreign Investment Promotion Board (DIPP) to waive off the mandatory divestment condition in the company’s bottling plants in India. The company has to shed 49% equity this year in Kools Drinks Beverages, a company it acquired in 2002. The company has bottling operations in Punjab, parts of Haryana as well as Himachal Pradesh. Pepsi had given an assurance to the government in 1997 that it would divest 49% in its bottling operations in 10 years. In 2002 the FIPB forced coca cola to divest 49% in its bottling operations despite repeated requests from the multinational. Coke referred to huge losses as the reason for not going in for an initial public offering (IPO) and finally opted for a private placement. Subsequently, the Atlanta-based Company bought back the shares from domestic investors.
Last month, the Foreign Investment Promotion board (FIPB) rejected a plea from Pharma major Colorcon to waive the mandatory dilution of its shareholding to 74% in its Indian venture. FIPB took a strong stand on Colorcon since the company was supposed to carry out the equity dilution by 2004. Though three years have gone by, no equity dilution has been carried out. Since the deadline has been missed, the board has decided to ask RBI to take action against the Pharma Company. Colorcon did not seek more time to comply with the condition.
Last year, in the case of British Gas, the FIPB had provided exemption from the mandatory divestment clause. The company was given the nod for holding a 50% equity in Mahanagar Gas (MGL) in December 2006.
The company had requested FIPB to grant a year’s extension for continuing with its existing equity stake of 50% in MGL. Even though the Petroleum Ministry did not support the extension of one year for continuing the foreign equity holding, the FIPB had approved the extension.
{The Economic Times, 1 August 2007}
The food processing ministry will comments on the recent issue of mandatory disinvestment in bottling operations for Pepsi. British Gas faced a similar problem but was later exempted from divestment from FIPB.
Pepsi had urged the Foreign Investment Promotion Board (DIPP) to waive off the mandatory divestment condition in the company’s bottling plants in India. The company has to shed 49% equity this year in Kools Drinks Beverages, a company it acquired in 2002. The company has bottling operations in Punjab, parts of Haryana as well as Himachal Pradesh. Pepsi had given an assurance to the government in 1997 that it would divest 49% in its bottling operations in 10 years. In 2002 the FIPB forced coca cola to divest 49% in its bottling operations despite repeated requests from the multinational. Coke referred to huge losses as the reason for not going in for an initial public offering (IPO) and finally opted for a private placement. Subsequently, the Atlanta-based Company bought back the shares from domestic investors.
Last month, the Foreign Investment Promotion board (FIPB) rejected a plea from Pharma major Colorcon to waive the mandatory dilution of its shareholding to 74% in its Indian venture. FIPB took a strong stand on Colorcon since the company was supposed to carry out the equity dilution by 2004. Though three years have gone by, no equity dilution has been carried out. Since the deadline has been missed, the board has decided to ask RBI to take action against the Pharma Company. Colorcon did not seek more time to comply with the condition.
Last year, in the case of British Gas, the FIPB had provided exemption from the mandatory divestment clause. The company was given the nod for holding a 50% equity in Mahanagar Gas (MGL) in December 2006.
The company had requested FIPB to grant a year’s extension for continuing with its existing equity stake of 50% in MGL. Even though the Petroleum Ministry did not support the extension of one year for continuing the foreign equity holding, the FIPB had approved the extension.
{The Economic Times, 1 August 2007}
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