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Pantaloon restructuring tests new FDI rules

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Arun Kumar New Delhi
Last Updated : Jan 19 2013 | 11:37 PM IST

Plans to bring in up to Rs 750 crore in foreign investment.

Kishore Biyani’s Future Group has been restructured to test the new rules on foreign direct investment (FDI) under Press Notes 2, 3 and 4 issued in February this year.

Although FDI is not permitted in multi-brand retail businesses like Future Group's, the conglomerate has created two layers of operations to take advantage of the three Press Notes that allow FDI up to 49 per cent in operating-cum-investment companies as long as they are owned and controlled by Indians.

According to a senior banker involved in the transaction, the structure fulfils the new norms since the FDI will not flow directly into the group’s retail company but through Future Fashion Merchandising Ltd (FFML), owned and controlled by Pantaloon Retail, soon to be renamed Future Markets and Consumer Group, in which the Indian promoter group holds a majority shareholding (see chart).

FFML, on its part, will run the group’s fashion and private label businesses and act as a holding company for Future Consumer Enterprise (FCE) Ltd, the company that will run the group's retail business in all formats.

At the same time, the promoters have decided to increase their holding in Pantaloon Retail to 51 per cent from 46 per cent through preferential issues of shares and warrants. As a result, the step-down subsidiary — FFML — will be treated as an Indian company.

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FFML, on its part, plans to raise Rs 750 crore from private equity firms, including foreign ones. Since FFML is the holding company for the retail business under FCE Ltd, this structure means that the core retail operations will have some element of FDI.

The reason this structure does not breach the retail sectoral limit in FDI is that FFML, which is raising foreign funds, does not operate in an FDI-restricted business, a banker involved in the transactions explained.

Also, since Indian promoters will hold more than 51 per cent in the holding company, the FDI would be Press Notes 2,3 and 4-compliant.

“We are restructuring the group business, to help us improve efficiencies and unlock shareholder value,” said a Future Group spokesperson, when asked about the new structure. “The group is looking at raising resources through various routes,” he added, but declined to discuss details.

Future Group is in the midst of raising around Rs 1,100 crore in two tranches. Besides Rs 750 crore in the step-down subsidiary FFML, Pantaloon Retail will raise Rs 368 crore. Of this, the promoters will bring Rs 292.80 crore through preferential issues of shares and warrants. Media conglomerate Bennet, Coleman will invest Rs 75 crore through its investment arm, Dharmyug Investment Ltd.

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First Published: Apr 20 2009 | 12:14 AM IST

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