OPINION, P8 ECONOMY, P2 ‘NO NEGATIVE IMPACT’ EDITORIAL Walmart is the retail deal India needed so badly SC right to stop govt from arm-twisting Airtel into paying contested dues INTERNATIONAL, P14 RESHAPING EUROPEAN TELECOM Civil aviation min says no to merger of Jet Airways and JetLite Colao-led Vodafone to pay $22 billion for Liberty assets MUMBAI, THURSDAY, MAY 10, 2018 FOLLOW US ON TWITTER & FACEBOOK. APP AVAILABLE ON APP STORE & PLAYSTORE WWW.FINANCIALEXPRESS.COM READ TO LEAD VOLUME XXXXXV NO. 354, 28 PAGES, `7.00 P U B L I S H E D F R O M : A H M E D A B A D , B E N G A L U R U , C H A N D I G A R H , C H E N N A I , H Y D E R A B A D , K O C H I , K O L K ATA , L U C K N O W, M U M B A I , N E W D E L H I , P U N E SENSEX: 35,319.35 ▲ 103.03 NIFTY: 10,741.70 ▲ 23.90 NIKKEI 225: 22,408.88 ▼ 99.81 HANG SENG: 30,536.14 ▲ 133.33 `/$: 67.28 ▼ 0.20 `/€: 79.95 ▼ 0.35 BRENT: $76.59 ▲ $1.74 GOLD: `31,143.00 ▲ `61.00 $16-BILLION DEAL Walmart raises India stake with Flipkart buy IN THE KART Co-founder Sachin Bansal, SoftBank, Naspers exit; big boost for local firm in fight with Amazon India ■ Walmart buys 77% stake in Flipkart for $16 billion ■ Co-founder Sachin Bansal sells 6% stake; SoftBank too exits ■ Co-founder Binny Bansal stays on as do Tiger Global, Tencent, Microsoft FE BUREAU New Delhi, May 9 WALMART ANNOUNCED ON Wednesday it was buying a 77% stake in Flipkart for approximately $16 billion, of which $2 billion would be added to the e-retailer’s equity capital. The world’s biggest retailer, which throws up $20 billion of cash every year, told analysts Flipkart was a unique opportunity and not just an ecommerce platform but also a payments system, a logistics outfit and a fashion vertical in whatwasoneofthebiggestand fastest-growing e-retailing markets in the world. “We’ve been in India forawhile andwe know the market. We will do everything we need to to grow thebusiness,”themanagement said,addingthatitwouldraceto build scale.Flipkart,it asserted, hadtheinfrastructure,technology and management capabilitytocashinontheopportunity though the deal will not be Walmart’sexpertiseinsourcing, logistics and category management — especially in food — is widelyexpectedtogiveFlipkart the edge it has been looking for. Oncetheretailerstartssourcing fresh produce from the farm gate it could lift the fortunes of farmers,theysaid. The transaction has been largely viewed as a win-win for all,Walmart, investors in Flipkart and Indian vendors and consumers.Theacquisitionwill impact the Indian start-up ecosystem in several ways, sector watchers observed.For one, it would be harder for general marketplaces,suchasthoserun by Amazon or Flipkart, to post market-share gains. They pointed out that Paytm’s marketplace had not gone very far despite the fact that it had been promoted by China’s Alibaba. However, local players such as RelianceRetailcouldposesome competition. ■ Capital infusion of $2 billion to help Flipkart take on Amazon India ■ Walmart’s expertise in the food segment to give Flipkart edge ■ Walmart to pursue omni strategy, to leverage cash-and-carry presence ■ India’s e-commerce market tipped to grow to $230 billion by 2022 ■ Amazon and Flipkart have a combined market share of 70% ■ E-commerce in India to be driven by rising penetration of internet and smartphones ■ Walmart-Flipkart deal could trigger consolidation in sector Continued on Page 2 ILLUSTRATION: SHYAM value accretive immediately. ThetransactionsawFlipkart co-founder Sachin Bansal,who held a near-6% stake,walking off with $1.2 billion while SoftBank and Naspers also exited. Binny Bansal, also co-founder, remains invested, as do Tiger Global,Tencent and Microsoft. The $2-billion infusionwill help Flipkart in its war with AmazonIndiaforabiggermarket share. Amazon, which has so far invested some $3.5 billion in India of the committed $5 billion, and has picked up a 5% stake in Shoppers Stop, is expected to up the ante. Between them, Flipkart and Amazon own 70% of the e- retailing market, estimated at just about 5% of the total retailing market in India. The Walmart management explained to analysts it would overtimepursueanomni-channelstrategy;ithas21cash-andcarrystoresandcanleveragethe relationship it has built upwith retailers. Experts pointed out ■ Consumer set to benefit from Walmart e-commerce entry, P6 ■ The CEO who helped deliver India’s online shoppers to Walmart, P6 ■ Masayoshi Son's oops moment, P6 ■ From modest start to Walmart nuptials and everything in between, P6 SoftBank may have to shell out ~`2,000 crore as tax SUMIT JHA New Delhi, May 9 SOFTBANK VISION FUND, which is selling its 22% stake in Flipkart toWalmart, may need to pay close to `2,000 crore to Indian tax authorities as capital gains tax. While all other major investors in Flipkart are based in treaty-protected jurisdictions, Indian tax authorities could still seek taxes from them invoking the limitation of benefit clauseunderthe tax treaties. Also,thereisthepossibility of Walmart losing Flipkart’s tax shield from the facility to carry-forwardlosses. Based in the US, the SoftBank arm doesn’t have the treaty cover to claim tax exemption in India, unlike most other large investors in theIndiane-commercefirm. Since it acquired the Flipkart stake in August last year, it is alsoliableforasteepershortterm capital gains tax (rather than long-term) on the proceeds. Given that SoftBank ■ Based in the US, the SoftBank arm doesn't have treaty cover to claim capital tax exemption in India ■ Though Tiger Global, Naspers, Tencent and e-Bay are based in treaty-protected jurisdictions, India's tax dept could still ask them to pay tax, invoking the limitation of benefit clause ■ Walmart may lose Flipkart's 'tax shield' from facility to carry forward losses boughttheFlipkartsharesfor $2.5 billion and is getting $4.5billionfortheassetnow, the capital gains are around $2 billion (~`13,000 crore); so the capital gains tax liability works out to be close to `2,000 crore. Currently, India taxes short-term (held for less than twoyears) capital gains LOOMING US SANCTIONS Special Feature iPad 2018: A learning tool worth the investment Priced `28,000 and above, the iPad 9.7-inch has been optimised for the Apple Pencil so that students can annotate notes and jot down references as they are studying ■ Gadgets, P13 With Jio Money, Sodexo will accelerate Digital India mission Sodexo has become a 100% digital company with fully-digital rewards and recognition offerings compliant with RBI and income tax rules, says CEO Stephane Michelin ■ eFE, P13 QuickPicks Bhushan Power & Steel: Don’t reveal highest bid, says NCLAT THE NATIONAL Company Law Appellate Tribunal (NCLAT) on Wednesday asked Bhushan Power and Steel's lenders to consider the bid submitted by Liberty House, but directed them not to disclose the identity of the highest bidder till the appellate tribunal decides on Tata Steel's plea, reports fe Bureau in New Delhi. Tata Steel had on Tuesday moved the NCLAT, challenging an April 23 order of the NCLT that directed the CoC to consider the late bid submitted by UK-based Liberty House. PAGE 4 Fortis directors deny charges made by 2 big shareholders FOUR FORTIS Healthcare directors, whose removal has been sought by two institutional shareholders, have denied allegations that they failed to maintain corporate governance and fairly represent interests of all shareholders, reports PTI. In a joint representation to shareholders, directors Brian Tempest, Harpal Singh, Sabina Vaisoha and Tejinder Shergill said the board had decided to consider only binding bids for Fortis, keeping in mind the firm’s immediate financing needs. PAGE 15 Uniqlo owner targets 1.2 bn people with first India store FAST RETAILING, owner of the Uniqlo casual-wear brand, will open its first store in India next year as Asia’s largest retailer looks to tap consumers in a country with more than 1.2 billion people, reports Bloomberg. The Japanese company’s opening of a New Delhi store in the autumn of 2019 has been long in the making. Tadashi Yanai, Fast Retailing’s founder, had sought access to the Indian market as far back as 2011. PAGE 4 US PRESIDENT DONALD TRUMP'S move to reimpose sanctions on Iran after more thantwoyearsofreprievegiven to the Persian Gulf country could keep global crude prices elevated in the short to mediumterm,analystsreckon. Imminent production cuts by Iran come at a time when global supplies are already hit by falling crude production in Venezuela, increasingly a key supplier to India. Even though only 10% of India's oil imports was from Iran in FY18, a cut in oil exports byOpec’s third-largest oil producer could manifest in India’s twin deficits — current account and fiscal. Sweetgrade Brent crude has around 28% representation in the Indian import basket. “Asfarasquantityofimport from Iran is considered, there arealternatives.Also,comparable grade of oil is also available. However, there were discounts givenbyIran(whichothersmay not offer),” said MK Surana, chairmanandmanagingdirector, Hindustan Petroleum Corporation (HPCL). TehranprovidesIndianimporters a credit of 90 days com- pared with around 30 days by othersuppliers.Iranisthethirdlargest supplier for the country afterIraq and SaudiArabia. Analysts feel that India could even keep the current level of purchases from Iran despite the US move. “While nations such as China, India and Turkey may oppose the US moveandkeepcurrentlevelsof Iraniancrudepurchases,American allies including Japan and South Korea may comply becauseofconcernstheycould loseasecurityumbrellaagainst North Korea,” Bloomberg quoted MUFG Bank as saying. Continued on Page 2 ■ Trump seen facing FY19 subsidy bill could go up by 1/3 WITH GLOBAL CRUDE prices expected to stay at higher levels than anticipated by policymakers,India’s fuel subsidy bill in FY19 may be 30% higher than the Budget estimate.The bill has been declining over four years to FY18 thanks to a softening of crude, decontrol of auto fuels and savings on domestic LPG subsidyunderdirectbenefittransfer (DBT) scheme. The FY19 fuel subsidy (on LPG and kerosene) might exceed the Budget estimate of `24,933 crore by about `7,583 crore if the Indian basketofcruderemainsatthecurrent level of close to $72 a bar- 12,000 10,000 8,000 6,000 4,000 2,000 0 US 10,264 Saudi Arabia 9,900 Iraq 4,430 Iran 3,750 Dec 31, 2015 Apr 30, 2018 Jan 4, 2016 JAN 2017: Prices stabilise as Opec agrees to output cut Council to assist 15th Finance Commission FE BUREAU New Delhi, May 9 THE 15TH FINANCE Commission (FC) on Wednesday sought to quell a raging controversy oversomestates’strongopposition to its terms of reference (ToR) that allegedly militate against those that have performedwellonpopulationcontrol,bysettingupasix-member council to“advise and assist”it on the ToR and “help in broadening the Commission’s ambit and understanding”. However, the council’s role is advisory in nature,and it can’t tweak on its owntheToRofthecommission, whichissetupwiththeapproval ofthePresidentinpursuanceof Article 280 of the Constitution. Any change in theToR has to be made by the Centre, with the President's assent. The setting up of the councilwillservetoeasepressureon the Centre, which has been accusedofsabotagingcooperativefederalismthrough“faulty” ToR.Thecouncil’sfunctionswill be “to advise the Commission onanyissueorsubjectrelatedto the ToR of the Commission, which maybe of relevance”. Detailed report on Page 2 ● TOO LOW INDU BHAN New Delhi, May 9 BENEFICIARIES ■ BHARTI-TELENOR: DoT had raised OTSC demand from them for approving merger Govt can't insist that companies pay one-time spectrum charge for M&A if there's a stay by courts May 8, 2018 Data source: Bloomberg SC junks DoT plea on Bharti-Telenor THE SC ORDER 74.85 US President DonaldTrump holds up a proclamation declaring his intention to withdraw from JCPOAIran nuclear deal. M&As GET A BOOST INAMOVE thatwillhaveapositive impact on several merger and acquisition deals in the telecom sector, the Supreme CourtonWednesdaydismissed thedepartmentoftelecommunications (DoT) petition challenging the telecom tribunal’s orderdirectingittoapprovethe merger of Telenor India with Bharti Airtel without insisting the latter to first pay up `1,500croretowardsone-time spectrum charge (OTSC). The order clears the path AUG 2017: Hurricane Harvey affects US Gulf Coast MAY 2018: US President Donald NOV 2017: Trump to Opec agrees end nuclear NOV 2016: MAR to extend Opec agrees to 2017: deal with 2016 output Iran and first output cut US oil since Dec 2008, inventory cut deal till impose Dec 2018 Russia follows rises sanctions rel for the rest of the year,officials reckon. Additionally, if the rupee remains depreciated against US dollar at the current level, the annual financial impact on domestic LPG and kerosene would be `1,130 crore, for every `1 fall in the value of the rupee. Continued on Page 2 Venezuela 1,550 (Brent crude oil, $/barrel) JAN 2016: US shale production starts picking; sanctions on Iran lifted by the US 37.22 (‘000 bpd) Russia 10,970 PRICES rebellion from biggest Iran oil customers, P12 ■ Oil hits 3.5-year high after US quits Iran deal, P12 ● IRAN FALLOUT PRASANTA SAHU & SAURABH KUMAR New Delhi, May 9 OIL IMBALANCE US shale cannot make good the fall in Iranian and Venezuelan output CRUDE OIL PRODUCTION Continued on Page 2 ● ROW OVER ToR India may not cut oil imports from Iran SAURABH KUMAR New Delhi, May 9 from unlisted shares at 15%, while similar longterm(overtwoyears)istaxed at 20% with indexation. As the buyer, Walmart has the onus of withholding thetaxbeforeitpaysthesellers,while the final tax liability is on the seller. As FE had reported earlier this week, most of the large investors in Flipkart — Tiger Global,Naspers,Tencent and e-Bay — are protected by treatiesthatgivewaiverfrom capital gains tax in India for investors based in Cyprus, Mauritius,Singaporeandthe Netherlands.All these investors are based in one of these jurisdictions.However,Indian taxauthoritiescouldstillseek tax payment in India invoking the limitation of benefit clause underthe tax treaties. An entity claiming residency in Singapore/Mauritius needs to prove “substance” in the claim by passing the motive and expenditure tests. ■ IDEA-VODAFONE: Next in line. The proposal should sail through now ■ BHARTI-TTSL: Proposal still to reach DoT but when it does, will not face roadblock not only for the Bharti AirtelTelenordeal butwill also expedite theVodafone-Idea merger which is in the final lap as well as the Bharti-Tata Teleservices pact which is still to reach DoT for approval. With the Supreme Court’s order, the DoT’s basic contention that as per the M&A policy the concerned companies need to clear their OTSC before they get the government’s approval, even if the matter is under litigation, stands rejected. The M&A policy states that if the OTSC is under litigation and the companies have obtained a stay order from courts, they need to pay a bank guarantee of the amount. Continued on Page 2 ■ Airtel plans Africa unit IPO in $4.6-billion debt cut, P4 Jaypee Infra CoC rejects Lakshadweep’s bid SURBHI PRASAD New Delhi, May 9 THE COMMITTEE OFcreditors (CoC) of Jaypee Infratech has rejected the offer made by Lakshadweeptobuytheembattled real estate company, sources said.“Around 90% of the votes were against Lakshadweep’s resolution plan,” a source close to the development said. FE had reported earlierthat thelendersfeltthebidwasvery lowandwashalfoftheliquidation value of the company at around `14,000 crore. “Lenders wanted Lakshadweep to increase the bid value but Lakshadweep didn’t want to increase the offer,” another source said. Lakshadweep, a joint venture between Sudhir Valia-led SurakshaAssetReconstruction Company and Mumbai-based Dosti Realty, has offered to bring in `3,510 crore upfront for the 25,000-apartment residential project of the Jaypee Group along the Noida Expressway. Continued on Page 2
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