Pantaloon's Gambit
The restructuring of Pantaloon Retail is being seen as a well-planned move to get FDI to fund expansion of its retail business.
Old wine in a new bottle—that’s the view prevailing in the market about the restructuring plan announced by Pantaloon Retail (India) Ltd (PRIL) in mid-April. The predominant thinking is that the main motive behind the ostensible realignment of PRIL’s retail and fashion businesses is to raise funds, including via foreign direct investment (FDI), for the group’s retail business, which is creaking under its debt burden in the current environment.
According to the plan, PRIL will be renamed as Future Markets and Consumer Group as the new holding company for businesses such as financial services, insurance, logistics, knowledge services and media. It will also have a 100 per cent subsidiary, Future Fashion Merchandising Ltd (FFML), which will make and distribute fashion products. FFML will have a 100 per cent subsidiary, Future Consumer Enterprises (FCE), which will include the retail businesses.
According to analysts, the group’s gameplan is to attract FDI up to 49 per cent in FFML, the holding company for FCE, and use the funds for retail expansion. New rules on FDI under Press Notes 2, 3 and 4 issued in February allow FDI up to 49 per cent in investment companies as long as they are owned and controlled by Indians. According to an official with a top consultancy firm, there is no ambiguity in Press Notes 2 and 4 with regard to FDI for entities like FFML.
Kishore Biyani, Managing Director and CEO of PRIL, is tightlipped over the FDI issue, but insists that attracting funds is only a secondary motive. “The main objective is to allow investors to participate in three separate businesses: retail, fashion and financial services.” He says the group intends to raise Rs 1,200-1,500 crore to fund expansion of its businesses and repay some debt. This will include Rs 300 crore that he and his family plan to invest in Future Markets and Consumer Group—this will raise the promoter holding to 51 per cent from 46 per cent at present; Rs 400-500 crore to be raised in logistics and knowledge business and the remaining Rs 700-800 crore in FFML from private equity investors.
DSP Merrill Lynch (India) believes the restructuring and equity infusion will be positive for Pantaloon, but most analysts are not as optimistic, for they feel the exercise doesn’t address the problem of high debt, which stood at Rs 2,767 crore as of June 2008. Liquidity infusion may just improve the debt-equity ratio. Well, that may give Pantaloon another opening on the chessboard.
According to the plan, PRIL will be renamed as Future Markets and Consumer Group as the new holding company for businesses such as financial services, insurance, logistics, knowledge services and media. It will also have a 100 per cent subsidiary, Future Fashion Merchandising Ltd (FFML), which will make and distribute fashion products. FFML will have a 100 per cent subsidiary, Future Consumer Enterprises (FCE), which will include the retail businesses.
According to analysts, the group’s gameplan is to attract FDI up to 49 per cent in FFML, the holding company for FCE, and use the funds for retail expansion. New rules on FDI under Press Notes 2, 3 and 4 issued in February allow FDI up to 49 per cent in investment companies as long as they are owned and controlled by Indians. According to an official with a top consultancy firm, there is no ambiguity in Press Notes 2 and 4 with regard to FDI for entities like FFML.
Kishore Biyani, Managing Director and CEO of PRIL, is tightlipped over the FDI issue, but insists that attracting funds is only a secondary motive. “The main objective is to allow investors to participate in three separate businesses: retail, fashion and financial services.” He says the group intends to raise Rs 1,200-1,500 crore to fund expansion of its businesses and repay some debt. This will include Rs 300 crore that he and his family plan to invest in Future Markets and Consumer Group—this will raise the promoter holding to 51 per cent from 46 per cent at present; Rs 400-500 crore to be raised in logistics and knowledge business and the remaining Rs 700-800 crore in FFML from private equity investors.
DSP Merrill Lynch (India) believes the restructuring and equity infusion will be positive for Pantaloon, but most analysts are not as optimistic, for they feel the exercise doesn’t address the problem of high debt, which stood at Rs 2,767 crore as of June 2008. Liquidity infusion may just improve the debt-equity ratio. Well, that may give Pantaloon another opening on the chessboard.
