Cabinet to consider local listing

Foreign firms could hold 100% stake in Indian arms

The cabinet committee on economic affairs (CCEA) will soon consider a proposal to delete the entry-level disinvestment clause imposed on foreign companies a few years ago.

If the proposal is cleared, several foreign investors in key sectors such as petroleum and petrochemicals, pharmaceuticals and non-banking financial companies (NBFC), can continue to hold 100 per cent stake in their Indian arms, without having to dilute their shareholding in favour of resident shareholders as required by the clause.

In the late-1990s, several foreign companies were allowed to set up wholly-owned subsidiaries on the condition that they would divest a minimum 25 per cent equity to resident shareholders within a period of five years.

While in some cases, it was made a sector specific requirement "" like in petroleum and petrochemicals, and non-banking financial services (NBFC) "" the government also imposed similar divestment conditions on a case-to-case basis, like in the cases of Coca-Cola and Pepsi. The latter was based on the recommendations of the foreign investment board (FIPB).

Coca-Cola India has already had to divest 49 per cent shareholding to local shareholders, and a similar condition is now applicable on Pepsi after it acquired an Indian franchise bottler. Coca-Cola might be able to revert to its original 100 per cent holding structure once the proposal moved by the finance ministry was cleared by the Cabinet, officials said.

As to how quickly Coca-Cola can do it will also depend on the terms and conditions it has signed with domestic stakeholders while offloading the shares.

The government's move follows the liberalisation of FDI norms in several sectors in the past few years "" it also removed the divestment clause on prospective cases since 2001.

Who will benefit

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• Early birds in the NBFC business; deletion of divestment clause in 2001 was only for new investors
• Lubricant companies, which are expected to offload 25% holding within five years
• Pharmaceutical firms, which set up 100% arms over five years ago
• Firms like Pepsi, Coca-Cola, Sodexho Pass, etc, on which divestment was imposed as an entry-level condition </ul