Tesco enters India’s multi-brand retail market with 50% stake in Trent

British retailer Tesco Plc has completed acquisition of a 50-per cent stake in Tata Group's retail arm Trent Ltd, becoming the first foreign supermarket chain to enter multi-brand retail business in India.

Trent announced that Tesco, through a wholly-owned subsidiary, has concluded its purchase of part of the equity shares held by the company in Trent Hypermarket (THL), a wholly owned subsidiary of Trent, and subscribed for additional THL equity shares. Consequently, Trent and Tesco will each hold a 50% stake in THL.

Tesco today announced that the transaction has been completed and the necessary approvals received and that its joint venture with Trent Ltd is now in place. The development comes days after the Tesco-Trent alliance received the final nod from the Competition Commission of India (CCI).

"Following the previous announcement and receipt of requisite approvals, Tesco has completed the establishment of a 50:50 joint venture with Trent Ltd, part of the Tata Group. The joint venture company, Trent Hypermarket Ltd (THL), operates the Star Bazaar retail business in India," Tesco said in a filing late on Tuesday.

This makes it the first foreign direct investment (FDI) in multi-brand retail in India since the government relaxed rules regarding this. But the market is limited to a few states as not all states allow FDI in multi-brand retail trade.

Trent Hypermarket, however, had to transfer four stores in Gujarat and Tamil Nadu - two states where FDI in supermarkets is barred - to its subsidiary Fiora Hypermarket to comply with local rules.

Tesco is reported to have already invested $90 million of the proposed $110 million for a 50-per cent stake in Trent Hypermarket, which operates 12 Star Bazaar hypermarkets.

"We have been working with Tata in India for over five years, supporting the development of their Star Bazaar and Star Daily multi-brand retail stores via the provision of wholesale and franchise agreements. We're delighted to be forming the joint venture, and look forward to working together to bring the best of our retail experience to the benefit of India's consumers," a Tesco spokesperson said.

In March this year, Trent formally announced a joint venture with British retail giant Tesco to set up a supermarket in India (See: Tesco announces JV with Tata's Trent for multi-brand retail in India).

The agreement envisaged that Tesco Overseas Investments (Tesco Overseas), a wholly-owned subsidiary of Tesco, would purchase part of the equity shares currently held by Trent in THL for approximately Rs150 crore and would separately subscribe to additional THL equity shares for an amount of approximately Rs700 crore.

Following the conclusion of the proposed investment, Trent and Tesco Overseas will each hold a 50 per cent stake in THL.

In December 2013, Trent announced that it currently operates 16 stores across the southern and western regions of India.

The proposed partnership will operate and build on the existing portfolio of Star Bazaar stores in Maharashtra and Karnataka, it said.