In a move to attract foreign INVESTMENT into its retail business, the Aditya Birla Group is likely to merge its two loss-making unlisted entities - Aditya Birla Retail, which runs More retail chain, and Madura Fashion & Lifestyle into Pantaloon Fashion & Retail, a listed entity.
The board of Pantaloon is likely to meet as early as next week to take a call on the merger proposal, which has been in the works for the last nine months, sources familiar with the developments said.
The merged entity will get tax breaks due to losses suffered by Aditya Birla Retail and Madura Fashion, the sources said.
At present, the Birlas own 72.62% stake in Pantaloon Retail which they took over from Future Group for Rs 1,600 crore in 2012. With the merger, Pantaloon will lead the group’s retail initiatives and create a Rs 7,200 crore sales entity, as per fiscal 2014 financial data.
When contacted a Birla spokesperson said the group keeps evaluating several proposal for its businesses. “If there is any development which requires a public announcement to regulators or to the STOCK MARKETS, we will inform the relevant authorities,” the spokesperson said.
“Currently, the Birlas are restructuring the businesses and have asked independent auditors to value the assets,” he said.
One of the issues faced by the group is how to attract foreign INVESTMENT in the merged entity so that the listed entity does not breach the foreign direct investment norms in the retail sector. The government at present does not allow more than 26% FDI in retail sector including foreign institutional INVESTORS. The Modi government has not changed the policy but the Economic Survey of 2014-15 says liberalising FDI in retail would help fill in the infrastructure and investment deficit in the sector. The survey further said the retail sector was affected in 2013 by high consumer price inflation, currency fluctuations, and strict FDI policies and made a case of liberalising the sector.
A source said the Birlas have sought clarifications from the market regulator, the Securities & Exchange Board of India (Sebi) on the FDI/FII INVESTMENTS in the retail company and whether private equity investments will breach the FII/FDI norms.
According to him, the private equity INVESTORS have raised doubts whether their investment in the merged entity will lead to breach of FII/FDI in retail norms since Pantaloons is a listed entity. “Foreign private equity investors will only invest once the regulatory issues are ironed out,” he said.
According to earlier reports in this newspaper, two private equity firms, L Capital and Temasek, and multilateral institution IFC were in talks to buy stake in the merged entity. The Birlas were planning to raise up to $500 million from the sale.
Another reason for the Birlas to seek investors is the rising losses of the retail businesses (see chart). Pantaloon Fashion, acquired from Kishore Biyani’s Future group, posted a net loss of Rs 187 crore on net sales of Rs 1,661 crore in 2013-14. Pantaloon Retail has made a loss of Rs 42.78 crore for the quarter ending December 2014 on revenues of Rs 450 crore. Pantaloon Fashion has a market cap of Rs 1,078 crore as on Thursday.
Though Aditya Birla Retail (ABRL) posted a 20% growth in sales at Rs 2,531 crore in fiscal 2014 as compared to the previous fiscal, the company piled up losses of nearly Rs 4,800 crore after seven years of operation. ABRL’s losses widened from Rs 583 crore in 2012-13 to Rs 596 crore in FY14. Madura, on the other hand, posted a loss of Rs 40.70 crore on sales of Rs 2,966.78 crore in FY 2014.
No comments:
Post a Comment