The government today waived the condition that made it mandatory for food and beverages major PepsiCo to divest 49 per cent equity in its Indian arm.
The CCEA also cleared the decks for PepsiCo India Holdings Ltd to bring in additional foreign equity investments of $50 million (about Rs 250 crore). At present, 100 per cent foreign direct investment (FDI) is allowed in this sector. In a meeting in October 2008, the Foreign Investment Promotion Board (FIPB) had recommended that the proposal for deletion of the divestment clause should be placed before the CCEA, whose earlier avatar, the Cabinet Committee on Foreign Investment, had imposed the clause.
“The CCEA today gave its approval to a proposal of PepsiCo Holdings for deletion of condition of disinvestment and additional infusion of about Rs 250 crore as foreign direct investment in its subsidiaries subject to conditions recommended by the Foreign Investment Promotion Board (FIPB),” Kapil Sibal, minister of state for science and technology, told reporters after the CCEA meeting.
PepsiCo’s case for waiver from the divestment requirement was heard by the FIPB for the third time in October last year. It subsequently referred the case to the CCEA.
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PepsiCo India Holding, however, declined to comment on the decision saying it would do so only after examining the papers.
PepsiCo and arch rival Coca-Cola were allowed to set up holding companies provided their subsidiary companies divested their equity and brought it down to 51 per cent in five years. These subsidiaries were allowed to buy bottling plants and take equity in franchisee bottlers.
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Coca-Cola complied with the divestment clause by selling 49 per cent equity in its bottling subsidiary, Hindustan Coca-Cola Beverages, to strategic investors, bottlers and employees in 1997.
After eight years, it bought back the shares to take control of the bottling operations. On if this decision will also be applicable to Coca-Cola, Sibal said: “We have taken a decision on the basis of a proposal from PepsiCo. So naturally the decision is for PepsiCo.” In June 2006, PepsiCo approached the FIPB with the request to waive the divestment condition, but the board chose to defer the request.
In June 2008, PepsiCo submitted another application to the FIPB for permission to infuse $50 million in the holding company.
This proposal, too, was deferred at the July 2008 meeting of the FIPB.