Friday, 30 August 2013

How Vikram Bakshi and McDonald’s Became Estranged Bedfellows

By Sourish Bhattacharyya

THERE’S obviously more than what meets the eye in the McDonald’s India-Vikram Bakshi saga. It now appears that Bakshi has been upset with McDonald’s for what he regards as undue favours shown by the fast food behemoth to its joint venture partner for the west and south, Hardcastle Restaurants Private Limited (HRPL), which was elevated to a “development licensee” in 2010. HRPL is owned by Banwari Lal and Amit Jatia.
Following the change of status, according to sources privy to this heartburn, HRPL, which had reported a loss of Rs 18.9 crore in FY2009-10 (the Connaught Plaza Restaurants Limited, CPRL, headed by Bakshi had made a profit of Rs 9.78 crore that year), was in the black by Rs 18.77 crore in FY2010-11. Here’s how it happened according to the sources (Bakshi refused to comment on the matter and the Indian Restaurant Spy is just reporting the facts as they unravel).
McDonald’s, and this is one of the major sore points, reduced HRPL’s royalty from 5 per cent to 3 per cent after its change of status. HRPL also retired its debt of about Rs 180 crore with funds brought in by private equity (PE) players — Bay Capital Investment Managers (Rs 59 crore), Indus Hospitality Fund (Rs 152 crore) and Treeline Asia Master Fund Singapore (Rs 25 crore) — into Westpoint Leisure Point, a company controlled by the Jatia family, which in turn loaned this amount to TripleA Food Pvt Ltd, which went on to loan this money further to HRPL, which had become its wholly owned subsidiary.
As a result of this complicated financial arrangement, HRPL was able to do away with the 5 per cent interest expense it was paying to McDonald’s. By mid-2010, after HRPL became a “development licensee”, say the sources privy to the battle of wills, McDonald’s wrote off its shares (it was a 50 per cent partner) in favourt of HRPL for just 0.1 per cent. McDonald’s, the sources allege, wrote off 99.9 per cent of its equity in Hardcastle for US$20,000.
Following HRPL’s change of status, the Jatias executed a reverse merger of the entities into a shell company named Westlife Development Limited, which has recently been the subject of scathing investigations by well-known financial journalist Sucheta Dalal (she was the one who exposed Harshad Mehta’s stock market manipulations) in Moneylife. The Indian Restaurant Spy doesn’t lay claim to any financial expertise, so we’ll let you draw your own conclusions from the two articles, which haven’t been contested by either Westlife or HRPL, whose links are given here:
Bakshi’s CRPL, meanwhile, continued to pay the interest expense and the higher royalty, which strained its relations with McDonald’s beyond redemption, and yet it made a bigger profit (Rs 20.4 crore, compared with Rs 18.77 crore). The friction, say sources, has its genesis in Bakshi not accepting what he saw as preferential treatment being given to the Jatia entity. CRPL, they say, is the better performer and yet it wasn't upgraded to development licensee. Was the Khan Market fiasco, then, merely an opportunity that McDonald’s grabbed to fix a recalcitrant JV partner? The truth may come out in installments, but it certainly will.