Ministry clears decks for Pepsi divestment waiver

NEW DELHI: The food processing ministry has given its clearance for waiving the condition that required Pepsi to divest 49% in bottling operations to Indian shareholders within five years. The condition was applied in 1997 on bottling operations that Pepsi had acquired then.

Earlier, the FIPB had deferred the proposal saying Pepsi needed clearance from food processing ministry — the nodal ministry. At that time, the Department of Industrial Policy and Promotion (DIPP) had said it has no objections on Pepsi’s application, provided the food processing ministry gave its clearance.

Sources in the same ministry said its recommendations would be sent to the FIPB soon. “We have studied Pepsi’s application for non-dilution of stake in bottling operations in India. We have cleared their proposal and it would sent to other government departments soon,” a senior ministry official said.

In 1997 Pepsi had made a commitment that it would divest 49% in its Indian operations to domestic shareholders within five years. Since the five-year period is set to lapse this year (Pepsi acquired its Pujab bottler in 2002), the company put forward a request saying the condition should be waived off as present 100% FDI has been allowed in food processing.

Ministry officials said that they were in favour of FDI in this sector and the waiver will give the right signal to foreign investors.

However in Coca-Cola’s case, which has a similar disinvestment clause, the government made it divest 49% in its bottling operations in 2002, despite the cola company’s repeated requests for waiver.

This was done to make it honour its commitment. When Coke said it had booked huge losses and cannot go for an IPO, the government asked it to divest through other routes. Finally, Coke had to go for private placement of shares. Subsequently, the Atlanta-based cola giant bought back the shares from domestic investors.