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October 9, 2013 6:53 am
Walmart, the world’s largest retailer by sales, is scrapping its troubled Indian joint venture with Bharti Enterprises in the aftermath of a series of regulatory investigations and concerns over international investment rules for the country’s retail sector.
The two companies will dissolve the partnership, which runs 20 wholesale stores, and instead operate independent businesses in Asia’s third-largest economy, they said in a joint statement yesterday.
Under the agreement, Walmart will buy out Bharti’s 50 per cent stake in the venture. The move comes on the heels of comments at the weekend from a senior executive at the US retailer that the tie-up was “not tenable”.
Walmart’s decision to focus on wholesale operations and at least temporarily abandon aspirations of opening full retail stores is likely to be seen as a further blow to attempts by India’s government to attract major global retailers into the country.
“This just reflects the fact that the policy on [foreign direct investment] needs a completely fresh look, because it clearly isn’t working,” said Arvind Singhal, chief executive of retail consultants Technopak Advisors in India.
The divorce will leave Bharti Retail, a subsidiary of the wider Bharti group controlled by billionaire Sunil Bharti Mittal, to operate its chain of Easy Day-brand neighbourhood convenience stores alone.
New Delhi last year changed regulations to allow international supermarket groups to own up to 51 per cent of their Indian operations, but no major grocery chains have taken advantage of the opening. Walmart has complained frequently about restrictions under the new ownership rules.
The companies’ joint statement said: “Walmart plans to continue to grow this business while working with the government and interested stakeholders to create conditions that enable foreign direct investment in multi-brand retail.”
Mr Singhal added that the US group’s decision to focus on its cash-and-carry operations, an area with no restrictions on foreign direct investment, provided good growth opportunities, and could also be an interim step towards a more fulsome entry into the country’s $450bn retail sector.
“Many of these partings come about because the two partners just don’t get along, but I think this is a different case,” he said. “Both sides are good companies and both wanted to make this work, but the rules simply didn’t allow it. I wouldn’t even be surprised that if rules changed at some point, they might even think about getting back together.”
Doubts about the future of Walmart’s Indian partnership had arisen since India’s government began investigating the US group for potential violations of earlier foreign ownership rules, following an arrangement in which it allegedly provided a $100m loan to a Bharti holding company.
Critics said the alleged loan, in the form of a convertible debenture that Walmart could convert into equity once India permitted foreign ownership of front-end retail businesses, was a clandestine and illegal direct investment in the retail company.
Walmart has denied any wrongdoing in the matter.
Rajan Bharti Mittal, vice-chairman and managing director of Bharti Enterprises, said: “Bharti is committed to building a world-class retail venture and will continue to invest in Bharti Retail across all formats. We believe that with our current footprint of 212 stores, we have a strong platform to significantly grow the business and delight customers.”
Under the terms of the deal, Bharti will acquire compulsorily convertible debentures held by Walmart in Cedar Support Services, a company owned and controlled by Bharti, the two groups said.
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