'Biyani doesn't want to sell stake, seeks to hike FII limit for growth'

The company has sought approval from foreign investment promotion board to increase the FII limit in the company from 24% to 49%

Kishore Biyani, the promoter of Future Retail, is not looking to sell any strategic stake in the company, sources said. Rather, he is only seeking to increase the foreign institutional investors (FII) limit to fund the firm’s plans and reduce debt, they added.

The company has sought Foreign Investment Promotion Board’s approval to increase the FII limit in the company from 24 per cent to 49 per cent.

While FII limit in retail companies is 24 per cent, FIIs’ stake in Future Retail stood at 25.8 per cent as on March 31, 2013.

“They do not want to sell any strategic stake in the company. They just want to tap larger investor base. Domestic equity or debt is not deep in the country and foreign investors understand retail well. So they want to tap that base,” said a banker who deals with the company.

Biyani could not be contacted for comments.

Analysts said that increased FII limits could help the company in case of share sale such as qualified institutional placement.

“If they want to for a qualified institutional placement (QIP), the increased limits will definitely help them given that domestic institutions normally show less interest in such deals,” said A K Prabhakar, senior vice-president (equity research) at Anand Rathi Financial Services.

“If more FIIs come in, valuations can go up and they can sell equity, which will help them reduce debt or expand their business,” said Prabhakar.

On the government’s clarification that FIIs were part of foreign direct investment (FDI) cap in multi brand retail, the banker quoted above said any listed retail company that wants to get foreign partner can create a drop down subsidiary or create a separate joint venture company, which will be separate from the listed company.

However, Arvind Singhal, chairman of Technopak Advisors, said the government is creating obstacles for foreign investors with norms like combined FII and FDI cap for retail companies.

“The government is complicating the FDI policy so much that nobody has applied for it. I think there should be one investor with 51 per cent ownership and there could be other classes of investors such as FIIs,” said Singhal.

“You can take an undertaking from foreign investors that the company and FII are not related,” he added.