PE cos may find limited retail space
PE funds may not be allowed to invest in retail companies which are franchisees of foreign brands. Stocks & sectors to watch | Gainers & Losers | Views on stocks
By Paramita Chatterjee, ET Bureau |
NEW DELHI: Foreign private equity (PE) firms are in for a jolt. If the government has its way, PE funds will not be allowed to invest in Indian retail companies which are franchisees of foreign brands. They will not even get to invest in retail companies where foreign investment is allowed.
Currently, the government allows global brands to invest up to 51% in Indian retail companies provided they sell all products in their outlets under a single brand.
However, PEs will not get to invest even in this category because only the owner of the global brand is permitted to invest in the Indian company. The one exception to this may be food and beverage retail where 100% FDI is allowed.
Whether foreign private equity funds can invest in retail companies, franchisee-led or foreign-owned, has been a grey area. The matter came to the fore when a prominent franchisee filed an application in the Foreign Investment Promotion Board (FIPB), seeking permission for fund infusion from a foreign private equity firm.
The board rejected the proposal as the Indian company was the franchisee of a global brand targeted at children. The company was asked to alter the proposal.
���At a stage when we were hoping that the government would further liberalise the foreign investment policy by increasing the FDI cap in certain sectors, this move has come as a step backwards,��� said an industry expert in the private equity space.
Impact on investment
In the first quarter of FY09, private equity players invested $2.8 billion, a 50% growth over corresponding period last year. Although this move is going to impact PE investments only in companies engaged in single brand retailing, there are apprehensions that it might bring down the overall investment sentiment in India.
Currently, the government allows global brands to invest up to 51% in Indian retail companies provided they sell all products in their outlets under a single brand.
However, PEs will not get to invest even in this category because only the owner of the global brand is permitted to invest in the Indian company. The one exception to this may be food and beverage retail where 100% FDI is allowed.
Whether foreign private equity funds can invest in retail companies, franchisee-led or foreign-owned, has been a grey area. The matter came to the fore when a prominent franchisee filed an application in the Foreign Investment Promotion Board (FIPB), seeking permission for fund infusion from a foreign private equity firm.
The board rejected the proposal as the Indian company was the franchisee of a global brand targeted at children. The company was asked to alter the proposal.
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���At a stage when we were hoping that the government would further liberalise the foreign investment policy by increasing the FDI cap in certain sectors, this move has come as a step backwards,��� said an industry expert in the private equity space.
Impact on investment
In the first quarter of FY09, private equity players invested $2.8 billion, a 50% growth over corresponding period last year. Although this move is going to impact PE investments only in companies engaged in single brand retailing, there are apprehensions that it might bring down the overall investment sentiment in India.
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