Coca-Cola India can breathe a sigh of relief as it has been allowed to buy back the equity that it divested in a bottling company three years ago.

Hindustan Coca-Cola Holdings divested 49 per cent in its bottling subsidiary, Hindustan Coca Cola Beverages to strategic financial investors, employees and bottlers three years ago as per the conditions it agreed to in 1997 when it applied to set up a business in India.

After eight years, the Foreign Investment Promotion Board has granted Coca-Cola India permission to buy back this stake. The board says the reason being that other companies that entered India after Coke did not have to divest in favour of Indian companies but have become wholly owned subsidiaries of the parent companies.

When Coke divested its stake in 2002, it did not issue a public offer as it was expected to but divested its stake to cronies, who did not have voting rights. The company now says these shareholders do not have money to invest in the Indian market, and would buy them out.

Coca-Cola India wants to pump in another $120 million into its Indian subsidiary. The company recently segregated bottling operations in India from the concentrate business with the aim to make it a stand-alone profit centre. The buy back will help it regain full control over its bottling operations, though many believe that the October 2002 divestment to "cronies" (employees, banks and bottlers) was an eyewash to appease a tough government.

A Coca-Cola spokesperson said, "The additional investments will enable Hindustan Coca-Cola Beverages to increase its urban and rural penetration and diversify its range of beverages and will help to secure a strong future for the company. The growth and prosperity will be of great benefit to employees, vendors, business partners and the communities in which it operates."

A business partner who had subscribed to the shares of Coca-Cola in 2002 said there was an agreement at the time that the shares divested will be bought back by the company after three years.

Coca-Cola India completed the divestment of 49per cent in its Indian subsidiary, Hindustan Coca-Cola Beverages, in favour of Indian shareholders in late 2002 after its petition for a waiver on the divestment clause was rejected by the government. It had cited accumulated losses of over Rs2,200 crore as the reason for seeking the waiver. But the government insisted that entry-norms in case of FDI had to be adhered to, and asked Coca-Cola to divest within a stipulated date. Coca-Cola finally agreed to carry out the divestment in favour of employees, bottlers and other business associates.