Security Disconnect In Fdi

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http://economictimes.indiatimes.com/articleshow/869660.cms

PRAGATI VERMA & MANOJ GAIROLA

As the battle over the foreign investment cap in the telecom sector spreads to political arena, the hotly-debated issue has been getting pushed off the decision table again and again.

While some telecom bigwigs are pushing for the hike to raise funds in the international markets through the equity route, it is likely to prove an easy exit option to some smaller players. An increase in the FDI limit will ease the way for a few telecom IPOs too.

The main beneficiaries of a hike in the FDI cap to 74% will be companies like Bharti, Hutch and Idea, which have substantial overseas holdings and those opposed are fully Indian-owned entities like Reliance and Tata.

“FDI might be a critical issue for some of the mid-sized and smaller companies for whom raising capital is difficult. Smaller companies need money to roll out new services and upgrade networks or will have to sell out to bigger rivals,” according to a leading analyst.

Interestingly, the FDI cap of 49% still leaves room for foreign holding to go up to 74% in a non-transparent manner, thanks to the pyramidal holding structure.

While the current FDI policy allows only up to 49% direct foreign ownership, an additional 24.99% foreign equity can be routed indirectly through an Indian-controlled investment company. So, total foreign holdings can go up to 73.99% (49% plus 24.99%), provided the management control and the investment company remain with Indians.