Wal-Mart's Jain leaves 7 months after CFOs exit

Written by fe Bureau | New Delhi | Updated: Jun 27 2013, 05:21am hrs
In a definite setback for Wal-Mart Stores, the retailer on Wednesday said that its president of its India operations, Raj Jain was no longer with the company. Wal-Mart has been among the most serious of global retailers wanting to set up shop in India it set up an office way back in 2006 but has so far run a wholesale cash and carry operation with Sunil Mittals Bharti Group. When India threw open the multi-brand retail space to foreign direct investment in September 2012, Wal-Mart had announced it would be opening stores.

The Bentonville, Arkansas-based company did not name a replacement, saying Ramnik Narsey, senior vice-president of Walmart International, would hold charge as interim leader for the firms India operations.

Jains exit, somewhat unexpected, follows that of Pankaj Madan, CFO of Wal-Marts India unit, who was suspended last November in the wake of potential violations of US anti-bribery laws. While the US firm continues its probe, Wal-Mart India is also under the scrutiny of the Indian government for having allegedly bribed officials. Moreover, the Enforcement Directorate is also investigation alleged violations of foreign direct investment norms by the company.

Jains departure, say industry sources, may have had to do with the several probes into Wal-Marts Indian operations. The ED was looking into an

investment of R455.8 crore made by Wal-Mart in Cedar Support Services, a subsidiary of Bharti Ventures and the holding company for Bharti Retail, which runs the front-end easyday stores.

The investment, made via compulsorily convertible debentures, was termed illegal and went against FDI rules under the Foreign Exchange Management Act and the Prevention of Money Laundering Act, CPI(M)s Rajya Sabha member MP Achutan alleged in a letter to the Prime Minister late last year. Separately, a panel headed by Mukul Mudgal, a former chief justice, has investigated claims that Wal-Mart broke rules as it lobbied to enter the countrys retail market.

In November, Wal-Mart launched an internal probe into possible violations of US Foreign Corrupt Practices Act in Brazil, China and India which follows an earlier probe in Mexico.

As part of the probe, Madan, the CFO of its India unit was suspended. In a separate statement on Wednesday, Walmart said that Madan remains on leave. We are committed to conducting a complete and thorough investigation and it would be inappropriate for us to comment further until we have finished the investigation, the company said in the statement.

Jain is the third chief executive to leave the company since 2011 under Wal-Marts Asia chief executive Scott Prices watch. Wal-Marts chief executives in China and Japan also left the company in 2011 and 2012, respectively.

Jains departure was announced in an emailed statement on Wednesday but the retailer did not specify the reason for his exit. During his tenure, our successful wholesale cash-and-carry, back-end services and consulting businesses were established, Walmart said about Jain in a statement.

About Narsey, Scott Price said in a statement, Ramnik brings significant management and leadership experience to the role. We remain optimistic about our business in India and look forward to our future under Ramniks leadership.

In March, Wal-Mart said it had spent $157 million in probing bribery allegations in its international operations and the spends are likely to increase as investigations continue. In 2007, the retailer formed a joint venture in India for wholesale cash-and-carry stores. It has a 50:50 joint venture with Bharti called Bharti Wal-Mart, which operates around 20 cash-and-carry stores in the country.

Wal-Mart has also been seeking to set up front-end stores but confusion relating to the FDI policy in multi-brand retail has delayed plans. Commerce minister Anand Sharma has called a meeting of retail stakeholders to discuss the FDI policy in multi-brand retail trade on Thursday. Wal-Mart is expected to send a representative to the meeting. Sources said that Price, the Asia president and chief executive, is in the country. Global retailers are struggling to understand and interpret the Indian governments policy on FDI in multi-brand and to figure out the dos and don'ts. Although convinced about the potential market estimated at $500 billion not a single global retailer has put in an application to do front-end business.

Wal-Mart...

The investment, made via compulsorily convertible debentures, was termed illegal and went against FDI rules under the Foreign Exchange Management Act and the Prevention of Money Laundering Act, CPI(M)'s Rajya Sabha member MP Achutan alleged in a letter to the Prime Minister late last year. Separately, a panel headed by Mukul Mudgal, a former chief justice, has investigated claims that Wal-Mart broke rules as it lobbied to enter the countrys retail market.

In November, Wal-Mart launched an internal probe into possible violations of US Foreign Corrupt Practices Act in Brazil, China and India which follows an earlier probe in Mexico.

As part of the probe, Madan, the CFO of its India unit was suspended. In a separate statement on Wednesday, Walmart said that Madan remains on leave. We are committed to conducting a complete and thorough investigation and it would be inappropriate for us to comment further until we have finished the investigation, the company said in the statement.

Jain is the third chief executive to leave the company since 2011 under Wal-Mart's Asia chief executive Scott Price's watch. Wal-Mart's chief executives in China and Japan also left the company in 2011 and 2012, respectively.

Jain's departure was announced in an emailed statement on Wednesday but the retailer did not specify the reason for his exit. During his tenure, our successful wholesale cash-and-carry, back-end services and consulting businesses were established, Walmart said about Jain in a statement.

About Narsey, Scott Price said in a statement, Ramnik brings significant management and leadership experience to the role. We remain optimistic about our business in India and look forward to our future under Ramnik's leadership.

In March, Wal-Mart said it had spent $157 million in probing bribery allegations in its international operations and the spends are likely to increase as investigations continue. In 2007, the retailer formed a joint venture in India for wholesale cash-and-carry stores. It has a 50:50 joint venture with Bharti called Bharti Wal-Mart, which operates around 20 cash-and-carry stores in the country.

Wal-Mart has also been seeking to set up front-end stores but confusion relating to the FDI policy in multi-brand retail has delayed plans. Commerce minister Anand Sharma has called a meeting of retail stakeholders to discuss the FDI policy in multi-brand retail trade on Thursday. Wal-Mart is expected to send a representative to the meeting. Sources said that Price, the Asia president and chief executive, is in the country. Global retailers are struggling to understand and interpret the Indian governments policy on FDI in multi-brand and to figure out the dos and donts. Although convinced about the potential market estimated at $500 billion not a single global retailer has put in an application to do front-end business.

Mylan ...

Sources said the CCI finding that the Mylan-Strides deal wont have any appreciable adverse impact on competition in India since both firms have insignificant presence in the relevant Indian market would come handy for the FIPB to clear the proposal. The CCI vets M&As for their potential adverse effect on competition based on criteria of turnover and assets of the merging entities to assess the combined entitys market strength. It, however, has a special (more intrusive) dispensation for mergers in the pharmaceutical sector, given the concerns and inter-ministerial scuffles over how to regulate brownfield FDI in this sector.

US pharma giants are showing an active interest in Indian injectables producers given the shortage in their home market after a regulatory crackdown on some of the major local manufacturers. Strides is known for its world-class manufacturing facilities and is a major player in the US too.

Sources said that with both Mylan and Agila having a small presence in the domestic injectables market, the DIPP also may not have any problems with the FIPB approving the deal. The DIPP insists on rigorous regulatory assessment of brownfield pharma FDI proposals as it fears that these could result in not only higher prices of medicines but also shortage of essential products in many therapeutic areas.

While India allows 100% FDI in the pharma sector, any foreign investment in existing pharma companies requires an FIPB nod.

Meanwhile, the FIPB will take up a total of 10 pharma M&A proposals in its meeting next week which includes a share transfer proposal by Total Prosthetics & Onthotics and another share transfer between Mauritius based-Castleton Investment and GlaxoSmithKline. Other proposals before the board include those by Ferring Therapeutics, Hyderabad based-Verdant Life Sciences, Symbiotic Pharmalab, Curadev Pharma, Soothe Healthcare, Lotus Surgical Specialties and Invida India. Other brownfield investment deals which are still pending with the FIPB include that of Mumbai-based Erica Healthcare and Karnataka-based Sutures India.

In December last year, when the FIPB cleared six brownfield pharma FDI proposals worth Rs 1,850 crore, a decision was taken after inter-ministerial consultations that all such projects will also be vetted by the CCI (the special CCI dispensation for pharma M&As needs an amendment to the Competition Act and this proposal is pending with the parliamentary standing committee). Foreign investment in existing pharma facilities came under the spotlight following acquisitions of some major domestic companies such as Ranbaxy, Shanta Biotech and Piramal Health Cares domestic formulations business by multinational firms.

The DIPP, which had earlier pushed for only up to 49 % FDI in existing domestic pharma firms, is now planning to send a detailed proposal to the Prime Ministers Office (PMO) seeking a review of the policy. The department wants more riders (like specified manufacturing and R&D investment commitments by the foreign investor and the market strength of the parties concerned) even as it would now be ready to put up with 100% brownfield FDI in the sector.

Lenders...

The jewellery exporter's case was referred to the corporate debt restructuring (CDR) cell on June 17 as it was unable to honour its debt repayment obligations to the banks. The proposal was put to vote at a meeting held on Monday and a majority of the bankers rejected it. The approval of an account for restructuring through the CDR cell is taken via a vote, where over 60% of the lenders concerned or lenders representing 75% of the loan amount need to approve the plan.

In its proposal, Winsome Diamonds had asked for a three-year moratorium on the loan starting July 2013 as they do not expect the business to pick up in the near term. The jewellery exporter also asked for a seven-year period to repay the loan amount and sought an interest rate of 10.5% compared to the existing rate of 11-11.25%, said Parikh.

Bankers say they are willing to look at a revised proposal in subsequent meetings when the company submits one.

The lenders had given stand-by letters of credit (LCs) in favour of international bullion banks like Standard Chartered of London, Standard Bank of South Africa, and Scotiabank, which encashed these LCs recently after Winsome failed to pay them. Winsome reportedly ran into trouble after a number of buyers stopped making payments, which led to a default on servicing interest on loans from foreign banks.

Bankers had formed a core group, with the top five lenders, to conduct a detailed investigation into the matter by talking to the buyers who had defaulted on payments to Winsome. They found that these buyers had witnessed huge losses in the commodity and forex derivative markets, leading to the defaults.