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Foreign investors may now get a bigger play in Indian telcos.


Date: 02-11-2009
Subject: Foreign investors may now get a bigger play in Indian telcos
 NEW DELHI: Indian promoters of telcos such as Bharti Airtel, Vodafone Essar and Aircel may now be able to divest further stakes in favour of foreign investors, as the restated shareholding patterns under the new foreign investor-friendly norms leave more room for overseas investment.

Some of the telcos, which had foreign holdings close to the upper limit of 74% under the earlier norms, have already disclosed to the regulators that foreign shareholdings have come down significantly under the guidelines outlined in Press Notes 2, 3 and 4 issued in February this year.

The Reserve Bank of India (RBI) and the department of economic affairs (DEA) had reservations against the new norms, as they fear that this will lead to violation of the foreign direct investment (FDI) guidelines.

The sharp change in restated foreign holdings is due to grandfathering clauses in the new guidelines. While simplifying the method of calculating FDI, the press notes said that as long as Indian promoters hold a majority stake (more than 51%) in any  operating-cum-investing company, it can bring in investment up to 49.9% through FDI. Such companies will be treated as Indian companies and they can invest through a joint venture in any other company that may be engaged in industries where there is an FDI cap.
According to Vodafone Essar’s disclosure to the department of telecom (DoT), the foreign holding in the company has come down to 64.38% under the new norms from 74% earlier. This includes Vodafone’s direct ownership of 42.34% and Essar’s holding of 22.04% through overseas firms.

Similarly, Bharti Airtel, which was in the midst of entering into an equity alliance with MTN of South Africa, has disclosed to the regulators that foreign ownership in the company is just 41% as against 70% earlier.

“Pursuant to Press Note 3 of 2009, the direct foreign shareholding of Bharti stands at 41% from the earlier composite foreign holding (direct and indirect taken together) of around 70%,” said the Bharti spokesman.

On March 20, RBI had asked DEA to review the new FDI guidelines issued under Press Notes 2, 3 and 4, saying they would lead to de facto full capital account convertibility. The new norms need to be notified under the Foreign Exchange Management Act (Fema) by RBI to give it legal sanctity.

Echoing RBI’s views, the DEA had also said that an investing company with 49% FDI can go ahead and invest in any FDI-prohibited sectors or exceed the sectoral limits in those industries.

“In one sweep, therefore, any sectoral cap of 49% and below has become meaningless in so far as downstream investment by a company with foreign investment below 50% and qualifying as an Indian owned and controlled company,” the DEA had argued.

Although Vodafone had bought 67% economic interest of Hutchison Telecommunications in the JV for around $12 billion, its direct ownership is just 45.79%. The economic interest of 19.54% and 5.11% that Vodafone owns through TIL (Telecommunication Investment India) and Omega, respectively, are now being counted as domestic stake since Indian shareholders have a majority stake in these companies.

In TIL, Analjit Singh (38.78%) and Asim Ghose (23.97%) are the majority owners. Earlier, the foreign ownerships were calculated on a proportionate basis. Omega is majority owned by IDFC group.

Source : The Economic Times


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