FDI in Multi Brand Retail is being hotly debated and voted on in parliament today
Clearly on a substance over form argument WalMart has done the wrong thing by jumping the gun and making such an Investment before it is even allowed
What was allowed was 100% FDI in Consultancy Services ~ Thus Bharti Retail Holdings Ltd ,which operates supermarkets through a subsidiary Bharti Retail Ltd, changed it’s name to Cedar Support Services in January 2010 after it must have amended it’s articles in December 2009 to show they were mainly involved in Consultancy Service ! ~ this was to enable WalMart to make an Investment of US $ 100 m in 2010 ! ~ A lot of this Money was then lend to Bharti Retail Ltd which ran retail stores! The Investment is through compulsorily convertible debentures to be converted after 18 months ( extended twice now to a latest September 2013 conversion) to give a WalMart a 49% Equity Stake !
How could WalMart even say it’s a Debt or a Loan that has to be returned ! ~ It’s clearly meant to be Equity ! ~ even if there is a ‘put’ clause in the contract !
So What’s Wrong with this !? one may ask ! ~ This is my take ~ Well,in 2010 FDI in Multi Brand Retail was not allowed ~ the gamble was it would be allowed in sooner or later and WalMart needed a head start so they could quickly commence operations from literally Day 1 after it would be allowed ! ~ and Capital Resources were needed to expand the retail Infrastructure in India~ so in March 2010,through their Mauritius Company, they gave US $ 100 m ( interestingly this now happens to be the minimum Investment that must be made for FDI Multi Brand Retail Investment when allowed ! ) to their Wholesale Cash & Carry Partners from 2007 ,the Bharti Group through the mode of compulsorily convertible debentures ~ The Monies were given to Cedar Support Services (earlier Bharti Retail Holdings) which had no employees and no profits ~ In turn Cedar lend a major part of these monies to Bharti Retail Ltd that runs retail stores
So WalMart’s Monies were Clearly being used as resources for Multi Brand Retail in India ~ The Legal Form and Argument may yet give them some defence ~ but substance over form they have clearly violated the spirit ~ I daresay this was allowed to happen too ,before it should be allowed to happen !
Why would a Consultancy need US $ 100 Million !?
Will be interesting to see how WalMart and Bharti wriggle out of this and how would the Congress led UPA II government be able to explain this wriggling and also get the parliament approval for FDI in Multi Brand Retail
WalMart is also currently facing allegations in USA for having paid Bribes in Countries like Mexico,India,Brazil & China to facilitate and smoothen their Operations in these countries
The Big always seem to have Big Problems !