FIIs to take secondary route in retail IPOs

The government has barred foreign institutional investors (FIIs) from participating in initial public offerings (IPOs) of retail companies.

FIIs will be allowed to buy shares up to 24 per cent in retail companies only from the secondary market "" after the listing of shares. In single-brand retail chains, the foreign direct investment cap is set at 49 per cent.

The move is likely to affect big companies like Reliance Industries, Bharti and the Aditya Birla group, in case they decide to mobilise funds from the primary market for their retail ventures.

According to the norms, FIIs will be prohibited from participating in the book-building process in retail sector IPOs because buying shares through the primary market is considered FDI. No FDI in allowed in multi-brand retail chains, while the FII limit is 24 per cent.

The decision was conveyed to investment bankers by government sources, when the former sought clarifications on policy guidelines for the sectoral cap in the sector.

In Pantaloon Retail (India), the only multi-brand entity to be listed, much before the debate over the FDI/FII cap in the retail sector began, the FII stake is not allowed to go beyond the existing 28 per cent.

The FII stake in other listed retail chains such as Trent and Provogue is less than 5 per cent each. Significantly, in Pantaloon Retail, too, the company will be able to raise funds from FIIs only through a rights issue.