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The ongoing Enforcement Directorate (ED) investigation into the Walmart investment in Bharti, made in 2010 in the form of a compulsory convertible debentures (CCD), is top of the list that’s stopping the American chain from forming a joint venture (JV) for a retail foray in the country, according to people in the know.
Political uncertainty, with the general election slated in the coming year, along with the condition of statewise nods to foreign direct investment (FDI) in retailing are among the other blocks, say experts.
Also, Walmart and Bharti, partners for a wholesale business, are yet to resolve the issue of which’ll own how much in the venture. While Walmart has the option to convert the debentures into a 49 per cent equity, the US chain is believed to be keen on 51 per cent, the permitted limit.
The challenging global retail environment might also force Walmart to focus on its existing key markets such as the US, UK, China, Brazil and Mexico for some time. Walmart’s second-quarter earning, for the period ended June 30, showed a disappointing 2.4 per cent rise in net sales at $116.2 billion. The largest retailer of the world, considered a bellwether for the market, said it expected total sales to rise by two to three per cent for the full year, a departure from its previous forecast of five to six per cent growth.
In fact, in the 90-minute presentation after the Q2 earnings announcement, the senior management, including Chief Executive Officer Mike Duke, hardly mentioned India in any context. A seeming indication that plans for this market can wait.
That Bharti Retail, which Walmart has often referred to as its “natural partner”, is not a priority for the American chain at this point is clear because Mitch Slape, chief operating officer for Bharti Retail, has been named senior vice-president of the Great Lakes Division for Walmart US. “In this new role, Mitch will have operational responsibility for 244 stores in the West Business Unit,” according to a company spokesperson. Mitch, a Walmart veteran who had come from its Mexico unit a little over a year before, “was on assignment to Bharti Retail from Walmart International”. Viresh Dayal, chief commercial officer, will serve as interim COO, Bharti Retail, in addition to his current responsibilities.
“We are yet to take a decision on the matter,” a Bharti spokesperson said, to a question on whether a one-year extension was being sought for converting Walmart's debenture into equity in Bharti Retail. The company did not comment when asked if Walmart and Bharti would strike a JV this year or any time soon for front-end stores.
Nor would Walmart give a specific reply to a question on the likely timing of the conversion of its debenture into equity in Bharti Retail. Its spokesperson only said the company was “optimistic about growing the Best Price Wholesale cash and carry business in India, as well as future retail investment opportunities that can be made possible through a clear and predictable FDI policy”.
And, that the company appreciated the continued effort by the Indian government to clarify investment conditions.
In March 2010, Walmart had invested $100 million in buying CCDs in Cedar Support Service, a company owned by Bharti Enterprises, which controlled Bharti Retail. Walmart has the option of converting the CCDs into equity by September 30 this year. However, the company could continue being invested in the Cedar CCDs beyond September, by extending the term. Walmart’s investment in Cedar is being probed by the ED for alleged violation of the Foreign Exchange Management.
