Coke's $850 m investment in India makes the prospect of 49% of its equity sale lucrative for stock markets.

LIFE HO TO AISI « In 1997 Coca-Cola India commits itself to diluting 49 per cent of its equity by July 2002. « Coke's India operations remain in losses, stocks market crash in 2000. In 2001, Coke seeks a five-year extension of 2002 deadline. « In April 2002, Coke repeats its request and cites instances of other foreign companies granted exemption from equity dilution. « Government extends deadline by a month to August 2002; Coke approaches PMO with its request. « The clear way out is to have guidelines listing obligations for all foreign companies and enforce them without exceptions.

Like fizz and cola, Coca-Cola's Indian arm and controversy are inseparable. The beverage giant has, in many ways, seen it all. It has found itself on the wrong side of a trade union leader who is now India's defence minister, got entangled in buy-out dramas, clashed with bottlers, and has even had bombs hurled at its bottling units. Yet, Coca-Cola could now be fighting its biggest battle. And no less than the country's highest office will decide on whether the company remains a wholly-owned subsidiary of the $20 billion (Rs 98,000 crore) foreign parent or becomes partly Indian.

In 1997, when Coca-Cola sought approval to invest $700 million in India, it agreed that it would within five years-by July 16, 2002-sell 49 per cent of its equity to Indian shareholders. Although the idea was to allow Indian investors to share the wealth that Coca-Cola would make in the country, the agreement did not spell out whether the sale of shares would be through a public issue or a private sale to a chosen few.

A couple of years ago, a SEBI committee recommended that companies who had committed to go public must do so. It reckoned that the public issues would help deepen India's capital markets and benefit small investors.

Though no valuation of Coke's Indian business is available, its investment in the country is $850 million. Coke has not been able to meet the dilution deadline. In its defence, the company points out that listing norms bar companies without a profit record from going public. Coca-Cola India has huge accumulated losses (some say in excess of Rs 2,000 crore). However, the defence falls through because the rules have been changed to allow loss-making companies to go public, provided 60 per cent of the shares were bought by institutional investors.

Coca-Cola feels that since it is making losses, its shares will not get a good valuation. Besides, the current market conditions do not favour a public issue. More importantly, it points out that a number of other subsidiaries of foreign companies have been exempted from diluting their equity. The divestment clause has been deleted in case of confectionery makers Perfetti and Wrigley, petroleum marketing company Dow Corning and Bio-Merieux of France. In a note to the Government, Coca-Cola has said that since companies have been exempted from divestment in the past, it should also be allowed some more time.

Says a Coke spokesperson: "We are on the threshold of bringing about a complete commercial beverage revolution in the country. Any change in the equity structure at this stage will defocus the company." Indeed, Coke is expanding furiously, bringing in its brands of tea and coffee and launching the Kinley mineral water brand in a Re 1 pouch. It is also exploring areas like milk products and fruit juices.

But critics aren't impressed. "It is not as though in the past five years the markets were always down," points out Prithvi Haldea, managing director, Prime Database. "It should not worry about a poor response because investors will lap up Coke's shares." A bigger fear is that if Coke is granted a waiver, other MNCs with similar commitments will also seek exemption.

Queering the pitch is the fact that a number of MNCs, across sectors, have delisted from Indian stock markets in the past two years. If listed companies are being allowed to delist, why is the Government insisting that unlisted companies should go public.

The whole episode points to India's ad-hoc approach to foreign investment. Instead of providing a level-playing field to foreign investors, successive governments have tweaked rules to suit individual companies. Coke's dilemma is only a manifestation of this malaise.