Indo Rama scraps retail foray plan

Indo Rama's plan to enter the retail industry appears to have suffered a jolt with group company, Indo Rama Retail Holding, withdrawing its application to the Foreign Investment Promotion Board (FIPB) for approval of its proposed tie-up with Office 1 Superstore.

The US-based retailer was slated to buy 10 per cent equity in Indo Rama's retail venture as part of a financial and technical collaboration.

Indo Rama had submitted the proposal to the FIPB for approval in spite of the government's continued dithering on allowing foreign direct investment in the retail sector.

In a letter dated August 1, 2005, the company said it wanted to withdraw the proposal owing to unforeseeable circumstances and a change in business plan. The board agreed.

Indo Rama's chief executive O P Lohia, who is outside the country, however, told Business Standard on phone that discussions with Office 1 Superstore were still on.

"It is still under discussion," he said, refusing to comment on the withdrawal of the application on the grounds that he had been out of the country for a week.

Indo Rama's proposal envisaged the foreign partner making a (sweat) equity investment of $100,000 for sourcing locally, and through the import route, products for all stores-owned and franchised.

Equity to the foreign partner was to be issued against lumpsum fees, or royalty.

The joint venture wanted to set up two company-owned stores, along side franchisee-owned stores all over the country. The company had negotiated a master franchisee fee of $250,000 to be paid in three tranches.

Of this, $150,000 was to be paid in cash and the rest converted into 10 per cent sweat equity. The rest of the equity was to be held by Indo Rama Synthetics and the promoter family.

During FIPB's deliberations, the finance ministry had said that it had no problem with allowing FDI in cash and carry wholesale trading, that is, import and marketing through Indian distributors. However, it had objected to the company setting up its own stores, since FDI in retail trading was not allowed.