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June 11, 2007

The Future of Capital?

Businessworld has a cover story on Future Capital - the financial services arm of the Kishore Biyani-promoted Future Group (formerly Pantaloon Group) - with a special focus on how it plans to provide loans to encourage consumers to buy more stuff from the group's retail stores.

I was especially interested in the parts that addressed the risks associated with Future Capital's investing in projects and companies that are closely linked to the group's fortunes.
In effect, Sain (Sameer Sain, CEO of Future Capital) and Biyani are building a web of intertwined companies. The Horizon International Fund is building several gigantic malls called Market Cities — many of which will be occupied by Pantaloon’s stores. The Hotel Fund will build a chain of four-star hotels — many of which will be set up in Pantaloon’s malls. Private equity fund Indivision has mostly invested in consumer product companies — many of which supply to Pantaloon’s stores.

...It is important that the two challenge and hold off each other. Sain will demand the best price from Biyani when Horizon International Fund leases realty to Pantaloon stores. Otherwise the interests of the fund’s investors would be compromised. Biyani will drive a hard bargain when Capital Foods (one of the companies that Indivision has invested in; it makes chinese sauces and processed food) asks for more shelf space in Big Bazaar. Otherwise, the interest of the Pantaloon shareholder and, more importantly, the Pantaloon customer would be compromised.

“The day the Future Capital blueprint was drawn up, I sold all my shares in Pantaloon Retail (worth about Rs 1 crore),” says Sain. The day the real estate funds were set up, it was decided that the fund management team would move out of Pantaloon Retail’s headquarters in Mumbai into a different office. It was also decided that no executive would hold dual responsibilities in Pantaloon and in the fund.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.