Buyback: The American Indian

B U Y B A C K
The American Indian

The Bissells want to up their stake in Fabindia. But the other shareholders of the closely-held firm could dig their heels in.

By Jaya Basu

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It's the kind of clothes label that you either like or don't. No in-betweens. No maybes. If you're the type that likes to wear handloom kurtas with your jeans and jootis, then you probably swear by Fabindia, a brand that has for 40 years been at the forefront of a unique fashion statement: ethnic yes, but also chic. Its garments, with their trademark prints and wooden buttons, have been the preferred choice of legions of loyalists over four decades-from jholawalla leftists in the 1960s and the 70s to Lexus-flaunting chatterati (so what if they pair a kurta with Versace lycra-blended jeans?) in the 1980s and the 90s.

And so, like a cult, the Fabindia legend has grown. From a tiny 500-square feet store in Delhi's posh Greater Kailash-I, Fabindia today has six shops-the largest in Delhi measures 4,000 square feet-including a newly opened café and another outlet that, in addition to clothes, sells bric-a-brac and objets d'art for homes, all ethnic, of course. Besides Delhi, Fabindia's six stores are spread over three other cities-Mumbai, Bangalore, and Chennai. And, of course, with other cities fast breeding their own bands of cognoscenti consumers, the store plans to spread elsewhere soon. Like Calcutta, Pune, and Ahmedabad.

But that's not the latest story about Fabindia. Did you know that back in 1974, when the Foreign Exchange Regulation Act (FERA) was introduced, along with companies like Hindustan Lever, Philips and Nestle, Fabindia had to go in for a dilution of its equity capital? Till then, Fabindia Inc., an US company promoted by an Indophile American, the late John Bissell, had owned 100-per cent of the Indian firm. Then, although two of its larger and better-known compatriots-yes, we're talking about Coke and IBM-decided to leave rather than dilute, Fabindia Inc. diluted its stake to 40 per cent. But unlike other companies that opted for dilution, instead of making a public issue, Fabindia remained unlisted and its shares (face-value: Rs 5,000) were privately placed. Today, 22 Indian shareholders have an overall 60 per cent stake in the company, prominent among them are Lt. Gen. H.K. Sibal, (12.12 per cent), Meena Chawdhury (10.37 per cent), and Madhukar Khera (9 per cent).

Now, with FERA being a forgotten nightmare, foreign companies have been busy hiking stakes in their India subsidiaries. Fabindia wants to do the same. The basic idea is to offer those who have been holding the shares since 1976 an opportunity to cash out. Fabindia Inc. will buy back 10 per cent of the equity from Indian shareholders, reducing the equity capital from Rs 80 lakh to Rs 72 lakh. Since the Bissells will continue to hold their 32 lakh shares, their relative holding will increase, taking the foreign shareholding to 44.44 per cent. How much will the US parent cough up for the shares? Says the late John Bissell's son and heir William: ''We are opting for this route as there was no other route for shareholders to exit from the company. The estimated value of Rs 63,000 per share would give them a good return for their investment.'' Last year Fabindia, which, incidentally, relies only on word-of-mouth publicity for marketing, raked in a turnover of Rs 34 crore, which may grow to Rs 40 crore this year. But what's irksome is the fact that exports, which accounted for 40 per cent of the turnover last year, are plateauing. Post-buyback, that's something the Bissells will have to worry about.

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