New Delhi, Sep 20 () : Walmart, the US retail giant is likely to exit the JV with Sunil Mittal-led Bharti group.
Walmart- Bharti JV is a six-year-old 50:50 joint venture in wholesale cash-and-carry business. This move comes less than a year after FDI in multi brand limit was raised to 51%.
Bharti would buy out Walmart and terms were being discussed. The reason for the exit is not known. Walmart finds that ED probe on it buying convertible debentures of Bharti owned Cedar support system in 2010.
As per the law in 2010, foreign investment in multi-brand retail was not allowed. The US retailer invested $100 million in the compulsory convertible debentures in the company that runs Bharti Retail. This is seen as FEMA (foreign exchange management act) violation.
The JV can go forward only if ED clears it and the option is for Walmart to go it alone. It has started talks with the Commerce Ministry to get clarity on the FDI guidelines.
From the finance section, Ramnik Narsey was moved to interim Chief post in Walmart while Viresh Dayal who took over as COO is from finance. Since both these heads are from finance, it is obvious that the US company is keen on valuations and stock taking and not on operations.
The balance sheet of 2012 shows Rs 372 crores loss of 20 Easy Day stores getting back-end support from Walmart. This year it has not opened any store so far. Bharti has 225 stores and Rs 1522 crore net loss and 2012 December alone accounted for a loss of Rs 538 crore. There is no move to convert the $100 million CCD into equity by September 30 into any Bharti entity which shows that Walmart is exiting.
An executive who was suspended for corruption in the JV by an internal probe has been now posted in Bharti Aitel’s African division. Bharti to get investors is difficult as the Walmart shares will have to be bought by them. Walmart is bogged down by state-wise clearance and from around 20 odd agencies, it has to get clearance.
Only a tie-up with an Indian partner can smoothen its entry and Future Group was said to be interested. Bharti might exit the business as retail is not their core business.