Domestic single-brand retailers eye foreign funds

While the government is trying to resolve issues related to 100 per cent FDI in single-brand retail, single brand domestic retailers, holding more than 50 per cent stake in the company are looking at attracting FDI to carry out their retail expansion plans.

Indeed while the retail sector looks lucrative for foreign PE funding, recent cases of leading domestic apparel companies reeling under debt pressures after having differences with their investors puts a question mark on the real prospects.

After Lilliput Kidswear announced plans to sell off the company after a fall-out with PE investors TPG and Bain Capital, the second largest kids’ wear firm Gini & Jony too is facing problems with its investors, including Anil Ambani's Reliance Capital making an exit from the company that went through a corporate debt restructuring (CDR) last year. Though the struggling phase between the single-brand retailers and foreign PE investors continues to hamper the growth of organised retail in the country, some single brand retailers such as Fabindia, Hidesign, Nalli and Gitanjali Gems are set to access foreign funds in tune with the FDI norms of retaining a controlling stake of more than 50 per cent in the company.

There have been a lot of uncertainties over the rules framed under FDI in single-brand retail regulation. The government had earlier allowed foreign investments in single brand retail with the condition that the foreign investor should be the owner of the brand. Fabindia’s proposal to induct L-Capital as an investor was kept pending by the Foreign Investment Promotion Board (FIPB) for about five months due to lack of clarity on the issue. And finally last week, the FIPB took the view that the brand ownership clause is related to foreign brands and not to Indian companies such as Fabindia. It was felt that no FIPB nod was required for change in foreign equity or for selling additional goods as long as Fabindia continued to be owned by an Indian-owned and controlled company.

Of course, domestic single-brand retailers have welcomed this move since now they can look at foreign investments to carry forward their growth plans. Now that the FIPB has said Fabindia did not require its approval, it is possible that this restriction may not apply to the ethnic goods maker but it will apply to companies such as Disney if they wish to invest in India through the single-brand retail route.

And on the other hand, though the government has allowed 100 per cent FDI in single brand retail, several clauses mentioned under the new regulation are proving to be a spoiler for foreign brands eyeing an entry in the country.