FIPB bottles up Pepsi's $50-m plan

NEW DELHI: PepsiCo���s fresh investment plan to bring in Rs 215 crore ($50 million) in its paid-up capital has got stuck. The government wants Pepsi to first decide on its mandatory equity divestment clause before it allows the soft-drink company to bring additional investment.

In June last year, PepsiCo had asked the government to waive a clause dating back to 1997, under which it needed to disinvest 49% equity in its bottling companies to local investors. PepsiCo had sought deletion of the equity divestment clause, arguing that 100% FDI is allowed in the food processing sector.

The issue is significant as the government has already set a high-profile precedent by forcing Pepsi���s arch rival Coca-Cola to divest 49% in its bottling operations. The latter bought it back subsequently.

Sources say that Pepsi has now asked the government not to take up the disinvestment proposal for discussion as it first wants to clarify the matter with its US parent. Meanwhile, it applied to the government to bring in additional funds to boost its capital base from $405 million to $455 million.

However, FIPB has asked Pepsi to clarify its position on the equity divestment clause by August 18, 2008, before it takes up the proposal for bringing in more funds into the local arm. When contacted, Pepsi spokesperson maintained a ���no comments��� status.

In 1997, the government granted permission to Pepsi to invest $405 million in India with two riders. First, it was not allowed to operate directly in areas designated for local franchisee bottlers. If any of the franchisee bottlers opted out which necessitated Pepsi to take direct control, it would need to take a prior approval from the government.