The government has rejected Phoenix Overseas Ltd plea to hike stake in Reebok India Ltd to the original level. Instead, the government has allowed Reebok International to maintain the current equity structure in Reebok India thus waiving the disinvestment clause imposed on the US company in 1997.
Indian company Phoenix has strongly objected to their shareholding being reduced to 6.85% from 20% in Reebok India and demanded equity holding of 20% as stipulated in the foreign collaboration agreement.
Reebok India Company entered India in 1995 through a 80:20 joint venture partnership with Indian company Phoenix . Reebok was allowed to increase equity from 80% to 93.15% in the footwear company in 1997 with the consent of Phoenix subject to the condition that Reebok disinvests equity in favour of the Indian company within three years. The government granted two extensions to Reebok and asked the US company to fulfil the disinvestment clause by December '03. According to the clause Reebok's equity including voting rights were to be capped at 80%.
However, Reebok in its latest letter to the government has said that even though Phoenix was a joint venture partner, it did not invest in the company in the last eight years. Its sole investment of Rs 1.5 crore was in 1995 when Reebok entered India . Briefing the government on the turbulent relationship it shares with Phoenix, Reebok said that its Indian partner did not even respond to its proposal to subscribe to additional equity in the company in June last year which would have increased Phoenix's shareholding to 20%.
Also, said Reebok, the original agreement between the two gives Reebok the right to terminate the joint venture agreement or require Phoenix to sell its equity to the US company. "So far Reebok has chosen not to exercise this right," says the company. Besides, the current policy allows 100 foreign investment in the footwear sector.
Raising objections, Phoenix has said that Reebok wants to retain the existing equity structure so that they pay a lower dividend to Phoenix . Also, they claim that Reebok has started making profits.
Apart from being a stake holder in the company, Phoenix was also one of the three licensee of Reebok India . Reebok sourced footwear from Phoenix , Moja Footwear and Lotus Bawa. It does not source from Phoenix anymore. The US footwear company broke even in the fourth year of its operation in India . Last fiscal, it clocked a turnover of Rs 104 crore.
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