DoT calls for security matters to be considered for FDI changes; Telewings stake approved

19 Jun 2013

The Department of Telecommunications (DoT) has reportedly called for the views of the defence and home ministries be taken into consideration regarding plans to lift the cap on foreign direct investment (FDI) in the telecoms sector from 74% to 100% before a final decision is made. The Economic Times cites unnamed DoT sources as saying that the other government ministries had raised concerns over security issues when the FDI cap was altered previously, from 49% to 74%. The DoT, understood to oppose the changes, is pushing for the Ministry of Home Affairs, the National Security Council and the Ministry of Defence to make recommendations before a final decision is made. The high-level committee on financing infrastructure (HLCFI) proposed the alterations to FDI, as a means to improve competition in spectrum auctions. Whilst the current 74% cap allows foreign companies to exercise complete control over their Indian subsidiaries, the HLCFI noted that the requirement to find an Indian investor for the remaining 26% presented an unnecessary constraint on potential investors.

In related news, Norwegian telco Telenor has been given approval to increase its stake in joint venture Telewings from 49% to 74%. The JV with Lakshdeep Investments, itself owned by Sun Pharmaceutical Industries, was formed following Telenor’s acrimonious divorce from its previous partner Unitech after their telco, Uninor, was stripped of its licences in February 2012. Telenor was awarded fresh concessions in November 2012 and is planning to transfer these to Telewings in the near future.

Meanwhile, the DoT has also launched an investigation into the amalgamation of eight Unitech subsidiaries. According to the Economic Times, a promoter is not allowed to sell a stake in a start-up within the first three years, or until the rollout conditions are met, whichever is earlier. Unitech acquired pan-India concessions in January 2008 via eight companies before selling a 67.25% stake to Telenor later that year, ‘through issue of fresh equity’ – suggesting that the promoter had not ‘sold’ the stake and, hence, honoured the lock-in clause. The ministry of corporate affairs (MCA) was unable to determine whether the sale and subsequent merger of seven of the companies into Unitech Wireless (Tamil Nadu) resulted in a dilution of equity or variation in equity structure, both of which were forbidden by the promoter lock-in clause of the cellcos’ licences.

India, Department of Telecommunications (DoT), Telenor India