Retail biggies rejig operations before stake-sale

Now that the 51 per cent FDI in multi-brand retail

has been approved by the Cabinet, India’s top retailers such as, the Future Group, Bharti Retail, Spencer’s Retail, Videocon’s Next Retail and Gitanjali Group are working over splitting their operations before selling stakes to foreign players. Since the decision over whether to let the foreign player enter a particular state or not has been left to the state governments, the retailers will have to restructure operations since many of their stores are based in states opposing foreign investment in supermarkets.

Retail companies are waiting for the official notification, which will spell out the guidelines, before beginning the process of restructuring. The government has allowed foreign companies to invest up to 51 per cent in supermarkets in India, but left it to state governments to decide whether they would allow such stores within their boundaries. So far, only nine states and two union territories have agreed to allow foreign investments in retail.

Overseas investors will have to seek no-objection certificates, or NOCs, from individual states before approaching the Foreign Investment Promotion Board, the nodal body that clears foreign investments. In case a state opposed to foreign investment changes its mind and an MNC-funded retailer decides to invest there, the company will have to furnish a fresh no-objection certificate from that state, there will not be a one-time, all-India permission.

To comply with the guidelines, leading retail chains are gearing up to modify operational structures before forging deals with foreign partners. For example, Bharti Enterprises, which operates 217 Easy Day stores in which Wal-Mart is likely to invest, will carve out stores operating in FDI-friendly states and create an organisational structure to attract investments. Similarly, India’s largest jewellery and lifestyle retailer, Gitanjali, plans to create either a two-company structure or a special purpose vehicle to attract foreign investment. The group runs 700 standalone jewellery and lifestyle stores, and 11 departmental stores christened Maya. Gitanjali Group Managing Director Mehul Choksi says they have already streamlined operations by ensuring that each store format is run as a separate company. For the formats where they are bringing in a foreign investor, they would tweak the structure accordingly. Spencer’s Retail, on the other hand, is exploring the option of splitting its back-end and front-end operations into separate entities and invite a foreign investor in the back-end.