The Hindu Business Line : Govt waives divestment condition for PepsiCo

Getting nods
CCEA deleted condition of divestment of 49% stake in Pepsico’s downstream bottling arms
It also approved the company’s proposal for additional equity investment of up to $50 million, or an FDI of about Rs 250 cr

Our Bureau

New Delhi, Jan. 2 PepsiCo’s wait for a waiver of a special disinvestment condition imposed in 1997, is finally over. The Cabinet Committee on Economic Affairs (CCEA) on Friday deleted the condition of divestment of 49 per cent stake in its downstream bottling arms, to Indian parties.

It has also approved PepsiCo India Holdings’ proposal for an additional equity investment of up to $50 million, or an FDI of about Rs 250 crore.

The decision was taken by the CCEA since guidelines for food processing sector now permit 100 per cent FDI, Science and Technology Minister, Mr Kapil Sibal, told reporters after the meeting. “When Pepsico India Holdings first invested in India, guidelines for investment were different. The guidelines have changed now,” he said

Pepsico India Holdings was granted an approval in 1994 to set up a 100 per cent holding company that would invest in Indian subsidiary company or a joint venture or would directly engage in manufacturing and distribution of beverages. Subsequently, it also got the permission to increase the FDI amount to $405 million to be subscribed by PepsiCo Inc (US or its subsidiaries) through an amendment dated December 1997.

The Government, subsequently, imposed special conditions that stipulated that in the areas where PepsiCo is directly engaged in manufacturing, marketing and distribution of beverages, if the company established wholly-owned downstream subsidiaries in the future, it would have to dilute 49 per cent equity in the company within five years. Participation in equity of franchise bottlers, or taking over the operations of franchisee bottlers would also attract a similar clause.

PepsiCo, through its subsidiary company Aradhana Beverages and Foods Company, took over the business of Dillon Kool Drinks and Beverages (January 2003), triggering-off the clause for dilution of equity by January 2008. In addition, the company also acquired the business of Charminar Bottling Company through its subsidiary company Aradhana Foods and Juices, thereby requiring a similar divestment by June 2011.

PepsiCo approached the Government in April 2007 requesting deletion of the condition of divestment since 100 per cent FDI was now permitted through the automatic route in the food processing sector. The company later sought approval for an additional equity investment in PepsiCo of $50 million.

Foreign Investment Promotion Board in its meeting on October 24, 2008, had recommended that the CCEA look into the proposal.

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