Coca-Cola India can buy back equity

Our Corporate Bureau
22 November 2005

Coca-Cola India can breathe a sigh of relief as it has been allowed to buy back the equity that it divested in a bottling company three years ago.

Hindustan Coca-Cola Holdings divested 49 per cent in its bottling subsidiary, Hindustan Coca Cola Beverages to strategic financial investors, employees and bottlers three years ago as per the conditions it agreed to in 1997 when it applied to set up a business in India.

After eight years, the Foreign Investment Promotion Board has granted Coca-Cola India permission to buy back this stake. The board says the reason being that other companies that entered India after Coke did not have to divest in favour of Indian companies but have become wholly owned subsidiaries of the parent companies.

When Coke divested its stake in 2002, it did not issue a public offer as it was expected to but divested its stake to cronies, who did not have voting rights. The company now says these shareholders do not have money to invest in the Indian market, and would buy them out.

Coca-Cola India wants to pump in another $120 million into its Indian subsidiary. The company recently segregated bottling operations in India from the concentrate business with the aim to make it a stand-alone profit centre. The buy back will help it regain full control over its bottling operations, though many believe that the October 2002 divestment to "cronies" (employees, banks and bottlers) was an eyewash to appease a tough government.

A Coca-Cola spokesperson said, "The additional investments will enable Hindustan Coca-Cola Beverages to increase its urban and rural penetration and diversify its range of beverages and will help to secure a strong future for the company. The growth and prosperity will be of great benefit to employees, vendors, business partners and the communities in which it operates."