Is it all over between Bharti and Walmart?

US firm puts the lid on possible front-end deal, says retail franchise with Bharti not tenable as base

There hasn't been any formal announcement yet but signs of Walmart, the world's largest retail chain, parting ways with India's telecom giant, Bharti, appear loud and clear.

Over the past week, top executives of the two companies had been dropping on-record hints of a possible end to their retail future together. But, as Walmart on Sunday practically put the lid on a potential deal with Bharti for front-end retail, sources said it was all over between the two.

It's a coincidence that both Walmart's Asia head, Scott Price, and Bharti Group Chairman Sunil Mittal spoke out on foreign soil, separately, on the future of their retail venture in India.

On the sidelines of an Asia Pacific Economic Cooperation (Apec) forum in Bali on Sunday, when Price told reporters that Walmart's existing franchise with Bharti was not tenable as a base, he left a question mark on an agreement for front-end retail. "Frankly, FDI has passed," news agency Reuters quoted Price as saying. On Saturday, at the same venue, Price had told the media that Walmart was talking to Bharti on various options and that an agreement could be reached between the two sides over the coming "several weeks". Today, he clarified that "both sides (Walmart and Bharti) are looking for the best way to move forward".

Mittal, who was in Johannesburg early last week to attend an India-Africa Business Council meeting, had spoken at length on Bharti's future with Walmart. He had said his company would take a call on its retail business after Walmart's India strategy became clear. He had indicated Walmart's decision was expected this month. But, within days, Price said that might take "several weeks". Neither Mittal nor Price, who was in India just a few days earlier, made any statement in India.

Asked whether Price's media statement in Indonesia should be considered Walmart's official stand and if the deal with Bharti was off, a spokesperson for Walmart India said: "We have nothing to add at this point." Bharti refused to comment. Text messages sent to Sunil Mittal and his brother Rajan Mittal, who looks after the group's retail business, remained unanswered.

Price said Walmart was not keen to invest in India, unless the multi-brand retail policy was made clear.

While the mandatory 30 per cent sourcing from Indian small and medium enterprises (SMEs) has been cited as a hurdle for companies like Walmart, there also are other policy issues, such as a minimum investment of $100 million to be compulsorily made in new facilities - 50 per cent of that in building back-end infrastructure. In Walmart's case, the US firm would want to pick up equity in the retail business of Bharti, with which it has a franchise pact. But, given the policy riders, it has not made any progress on buying a stake in Bharti Retail.

In fact, Walmart had in March 2010 invested $100 million in Cedar, Bharti Retail's parent company, as compulsorily convertible debenture (CCD). After a few extensions, the deadline to convert the CCD to 49 per cent equity in the venture was September 30, 2013. But Walmart recently chose to seek another extension, of one year. This investment is being investigated by the Enforcement Directorate for an alleged violation of the Foreign Exchange Management Act (Fema).

"We created a franchise in retail with Bharti, hoping there could be a potential freeing up (of foreign direct investment) that would allow it to potentially be the base of the business. But, frankly, the FDI has passed," Price told Reuters. "That means the existing franchise to Bharti is not tenable as a base. What we are talking about with Bharti is what we (should) do with that business." According to Price, it's not possible for any foreign retailer to comply with the norms. He added "no domestic retailer is complying either".

On the multi-brand policy issue and if the government was willing to make changes to the policy to bring in foreign investment in retail sector, Department of Industrial Policy and Promotion (DIPP) Secretary Saurabh Chandra could not be reached on phone. DIPP is the administrative department for the retail policy.

It's been more than a year since the government opened the multi-brand retail sector to up to 51 per cent foreign direct investment (FDI). But not even one proposal has so far come from any retailer. Tough policy riders are being seen as the biggest obstacle, apart from the fact that the global economy has been weak.

Even so, Walmart maintains it is not exiting India. Price said in his media interaction on Sunday: "We are committed to India and are not thinking of leaving the country anytime soon." Walmart and Bharti have a 50-50 JV for cash-and-carry, or wholesale, business in India. The two had called each other "natural partners" for front-end retail, too. But that has clearly failed to take off.

The wholesale business, called Best Price Modern Wholesale, which was expanding until last year, hasn't added even one store to its 20 outlets this year. Even Bharti Retail's EasyDay, for which Walmart provides back-end support, hasn't grown beyond a little over 200 stores it had last year.

A few months ago, Walmart's India head Raj Jain was replaced by Ramnik Narsey as interim chief. At Bharti Retail, too, COO Mitch Slape, an old Walmart hand, was sent back to Walmart, US, recently. Also, five of Bharti-Walmart executives in India were suspended in an anti-corruption drive. In another sign of tension between the two partners, one of those suspended, Pankaj Madan, was later absorbed by Bharti's telecom business, Airtel.