The government may have rejected Coca-Cola India's appeal to statutorily dilute its equity for the third time in July, but the US cola giant pulled out all the stops to prevent this from happening. US Ambassador to India, Robert D. Blackwill, who wrote to Principal Secretary Brajesh Mishra on the matter, invoked the usual mantra of it is a "potentially serious investment problem of some significance to both our countries."
In a letter written to Brajesh Mishra on May 30, Blackwill said, "it seems to me that in view of India's ongoing economic reforms and considerable efforts to attract and maintain greater levels of foreign direct investment, there should be some flexibility possible in resolving these issues in a way that is acceptable to both sides." Blackwill added that "while an argument has been made by some that an agreement is an agreement and, therefore, should be adhered to, it is clear that market conditions, and the rules and regulations governing the soft drink sector have changed considerably since 1997." While talking about liberalisation, he further added that "in fact, this sector is now almost completely liberalised. Moreover, new and even not-so-new entrants to the consumer goods market operate virtually unencumbered by the divestment obligation being imposed on Coca-Cola. This strikes me as an unfair disadvantage to Coca-Cola."
In another communication to Commerce Secretary Dipak Chatterjee on June 4, an Assistant Secretary for Market Access and Compliance, United States Department of Commerce, International Trade Administration, Washington DC, William H Lash III said, "I understand that this is the second time that Coca-Cola's waiver request has been denied. I find this to be very unfortunate, not just for the company but also for India's investment climate."
Under the conditions agreed between Coca-Cola India and the government in July 1997, Coca-Cola India had agreed to divest 49 per cent of its stake to resident Indian shareholders within five years, that is by the year 2002. However, due to its huge losses and fear of getting very low price of its shares in dull market conditions, Coca-Cola India appealed to the Government to waive off this condition. This appeal was rejected twice besides being deferred once early this year. Coke eventually had to give it up last month when it announced to place 49 per cent shares privately to its bottlers and employees.