Purvita Chatterjee, The Hindu Businessline

Mumbai, November 25, 2011

Mr Kishore Biyani, Chairman of the Future Group, is holidaying in Brussels right now. But he may well extend his trip from Belgium to the neighbouring country to renegotiate with French retailer Carrefour, after foreign direct investment in multi-brand retail was approved by the Government yesterday.

Looking forward to fresh infusion of funds into his debt-laden retail company (Pantaloon Retail and its fully-owned subsidiaries), India's Sam Walton had been lobbying hard for FDI to come in and was elated when it was finally declared.

Speaking from Brussels on the night FDI was announced, Mr Biyani said, “It is a win- win-win situation for us. There will be better infrastructure especially at the farm side of the business, create new job opportunities and bring in capital. More retailers will create more choices for consumers. There will be $8 -10 billion of fresh investments coming into the country over the next 5 to 10 years.”

In fact, capital infusion is the need of the hour for Mr Biyani as he is saddled with debt of nearly Rs 4,000 crore, and has been seeking partners for most of the formats the group has such as Big Bazaar, Ezone, KB's Fair Price and Home Town. Recently, Biyani negotiated with Japan's convenience store chain Lawson to pick up a 49 per cent for food sourcing and manufacturing. But Future Group officials say debt in its Rs 11,500 crore retail business is not at an uncomfortable level. They claim that the debt amount of Rs 4,000 crore on a huge turnover of Rs 11,500 crore is negligible and that cash flows can lead to normal debt equity ratios.

Meanwhile, industry observers are of the opinion that FDI in retail can certainly take care of the debt issues for most retailers. According to Mr Devangshu Dutta of Third Eyesight, a retail consultancy, “With FDI, the cost of capital will be lower and companies will be able to roll over their debt to the foreign partner who could have access to cheaper funds. With FDI Indian retailers will be in position to have better balance sheets.”

Biyani's hopes of partnering with French retailer Carrefour may finally come true. After all the other top international retailers like Tesco (with Tatas) and Wal-Mart (with Bharti) have already found their partners in India. Officials at Future Group said, “Mr Biyani was keen to forge a similar arrangement to Wal-Mart Bharti but now with FDI in retail, he might take it forward.''

But whether Carrefour would choose Mr Biyani's debt-laden company at this stage is an open question. As Mr Dutta observes, “While foreign retailers may get the benefit of a footprint in the country with big retailers like the Future Group, they may like to have a passive partner who is not that big in retail but has access to real estate and funds.”