Given its awesome financial clout, Coke believes it will be able to successfully arm-twist a couple of bureaucrats and their political bosses to enable it to renege on its contractual obligations.

Coca-Cola India has been deliberately dragging its feet on floating an initial public offering of shares after having signed on the dotted line five years ago. This fact is well known to industry ministry officials sitting in Udyog Bhavan where the Foreign Investment Promotion Board is located.

The circumstances of the case are also known to sections of the media. Still, many business journalists have preferred to passively highlight Coke's views on the topic without questioning the logic of the company's arguments.

One financial analyst, however, has been openly critical of Coke's actions and he is Prithvi Haldea, Managing Director, Prime Database, a firm that closely tracks the country's primary capital market.

Haldea has written a series of articles on the subject in various newspapers. Unlike other MNCs with well-oiled corporate communications departments that react rather promptly to any negative publicity in the media, Coke has curiously chosen not to respond to these reports in the press.

Haldea says he tried a number of times over the last year or so to get in touch with Coke executives to ascertain their points of view. They said they would get back to him, but never did.

On at least three occasions, Coke has attempted to wriggle out of its commitment to float an IPO, but each time its plea has been rejected by the government. But this does not seem to have deterred Coke.

What seems most likely is that the Indian government would buckle under pressure from the Atlanta, USA-based beverages giant and once again, extend the deadline set for Coke to float an IPO.

Twenty-five years ago, in 1977, George Fernandes, who was then Industry Minister in Morarji Desai's government, had decided to throw Coke (as well as IBM) out of India because the soft drinks company refused to adhere to a particular provision of the Foreign Exchange Regulation Act.

This provision had stipulated that foreign companies should dilute their equity stake in Indian companies to 40 per cent if they wished to operate in the country.

Coke refused, then left India and did not return for nearly two decades. By which time, the provisions of FERA had been fully diluted.

Fernandes is currently Defence Minister in Atal Behari Vajpayee's government. It is not known if this fiery socialist has registered his protest with the powers-that-be about Coke's more recent actions.

Let us look briefly at the bare facts of the case. In 1997, Coke's Indian associate had signed an agreement with the FIPB that it would adhere to existing government guidelines, one of which enjoined the company to divest 49 per cent of its equity holding to the general public by 17 July 2002.

This deadline was subsequently extended by a month, but there is no reason to believe that Coke would stick to the new deadline set for it. On the contrary, there is every reason to presume that Coca-Cola India is just not interested in floating an IPO.

Consider some of the explanations forwarded by Coke spokespersons for not offloading its shares - explanations that have usually taken the form of off-the-record briefings to pliant journalists.

Coke claimed that since its Indian arm had been incurring huge losses, it would not be able to meet the requirement that a company should earn profits for three years before undertaking an IPO.

The problem with this argument was simply that the watchdog of the country's capital market, the Securities and Exchange Board of India had, on its own, done away with this requirement.

In India, as in the US, any company can now offer its shares to the public irrespective of whether it has been earning profits or incurring losses. Moreover, there is nothing in the FIPB's guidelines about the financial position of a company with foreign investment floating an IPO.

Coke officials have also brazenly pointed towards the depressed bourses in India as a factor responsible for the delay in the company going ahead with an IPO. This argument too is specious because nobody can predict the state of the stock markets in India or elsewhere.

The company has issued veiled and not-so-subtle threats. Coke executives have reportedly stated that since it is among the top five foreign investors in India, "forcing" it to go in for an IPO would have "far-reaching consequences" for other foreign investors.

The real reasons for the delay seem to lie elsewhere. Coke's arch-rival Pepsi has been allowed by the government to hold 100 per cent of the shares of its Indian subsidiary. Hence, a level playing-field should exist for both companies, it has been argued.

The flaw in this argument, Haldea explains, is that Pepsi was allowed by the government to set up a wholly-owned subsidiary much before Coke made such an application before the FIPB.

"Why then did Coke agree with the FIPB stipulation to float an IPO? Did it not think about whether or not the playing field was level at that time?" asks Haldea.

Coke executives have also reportedly held out a number of threats if it was "compelled" to sell its shares to the Indian public. The first threat is that this may lead to a repatriation of a huge amount of money in the region of Rs 16 billion.

The second threat is that it made no sense for Coke to go in for an IPO and list its shares in Indian stock exchanges because it would then soon de-list its shares as per existing Indian laws.

This is theoretically possible but the company has to nevertheless list its shares first before de-listing them.

Says Haldea: "Let Coke make a mockery of our laws which are in any case riddled with loopholes. That's not the point. The company has to first implement what it has said it would do before the FIPB - which is in the nature of a binding agreement - namely, float its shares to the general public in this country."

Coke has also suggested that it go in for a private placement of shares instead of floating a public issue. This too, Haldea feels, is an afterthought and an effort to renege on the company's contractual obligations.

A private placement would only benefit Coke's business partners, such as the company's bottlers, he claims.

The MD of Prime Database is of the view that over 20 MNCs operating in the country are currently waiting and watching what the Indian government does in the case of Coke's IPO because these MNCs are in a similar bind having already committed themselves to the FIPB for a public floatation of shares.

Haldea says many MNCs don't want to list their shares in more than one country because different countries follow different accounting norms and disclosure standards.

He contends that many MNCs merely pay lip service to the virtues of good corporate governance that, in turn, means greater transparency, public and media scrutiny of a company's financial statements and greater accountability to shareholders.

It is further contended by Haldea that Coke would find it next to impossible to float an IPO before the government's revised deadline of August 17. This is on account of the time that is normally taken to fulfill various formalities before a company can undertake an IPO.

These formalities include the appointment of a merchant banker who then conducts due diligence on the offer document before it is filed with SEBI.

The draft offer document is then posted on SEBI's Web site so that anybody can react or comment on the document before it is finally approved by the market watchdog.

Since all these procedures would take at least a month, possibly much longer, before they are completed, Haldea is reasonably certain that the FIPB may well extend the deadline given to Coke once again.

When there was a payments dispute between the Enron-promoted Dabhol Power Company and the Maharashtra government more than a year ago, many representatives of the US government (including the US Ambassador Robert Blackwill) and American business were sharply critical of India for allegedly not enforcing a legally valid contract.

All such self-righteous individuals have so far remained silent on the Coke issue. This time round, it is clear that the shoe fits the other foot.

The author is Director, School of Convergence @ International Management Institute, New Delhi and a journalist with 25 years of experience in various media - print, Internet, radio and television.

FAIR USE NOTICE. This document contains copyrighted material whose use has not been specifically authorized by the copyright owner. India Resource Center is making this article available in our efforts to advance the understanding of corporate accountability, human rights, labor rights, social and environmental justice issues. We believe that this constitutes a 'fair use' of the copyrighted material as provided for in section 107 of the U.S. Copyright Law. If you wish to use this copyrighted material for purposes of your own that go beyond 'fair use,' you must obtain permission from the copyright owner.