Loop Tele Under Dot Watch

[savramesh 37]

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NEW DELHI: The telecom department is set to issue a show-cause notice to Loop Telecom asking the telco to explain why its mobile licences across 21 circles should not be cancelled for violating telecom norms. Last month, DoT had asked the ministry of corporate affairs (MCA) to carry out a second investigation into the ownership and shareholding pattern of Loop after complaints that the Essar Group had violated licensing laws, which stipulate that the same company cannot hold over 10% in two different telcos.

The DoT had then said it wants a “clear and conclusive finding of expert investigation” before sending any show cause to Loop. The Essar group owns 33% in Vodafone Essar and has a 9.99% indirect holding in Loop. Following the report from the MCA, it has now decided to send a show-cause notice. The MCA, after probing the ownership of Loop Telecom the reiterated that while Essar Group does not have a direct stake in the telecom company, funds from the group have been routed into it through other companies.

Besides, it said, Loop’s operations are controlled or influenced by Essar Group. “It has been corroborated through the findings of MCA that there is significant financial control over STPL that in turn owns 76.7% in Loop. Thus, the Essar Group can be stated to have significant control over Loop. It is therefore suggested that the issue of control through exaggerated debt funding by Essar Group be made a part of the proposed show cause notice to Loop Telecom,” said an internal note of the DoT on this subject. ET had accessed this note.

When contacted, the Loop Telecom spokesperson said there were ‘no violations’ by the company while adding that the shareholding structure is fully compliant with relevant guidelines.

MCA’s investigations had shown that Loop is owned by a company named Santa Trading Pvt Ltd (STPL), which in turn owns BPL Communication and BPL Mobile Communications. The Essar Group does not have a direct stake in STPL, but holds 9.99% indirectly. STPL is owned by Kiran Khaitan, sister of the Ruia brothers—Shashi and Ravi—who own the Essar Group. The Essar Group has also invested Rs 1,592 crore in the unsecured, non-convertible debentures of STPL.

As per MCA, the shareholding of Loop is held through a multi-layered structure: It is 24% owned by BPL Communication, 51% by BPL Mobile Communications and 24% by Capital Global, Mauritius. This structure gets further complicated with BPL Communication having 73.99% stake in BPL Mobile Communications. STPL has about 86% stake in BPL Communication. Essar Teleholdings, part of the Essar Group, holds 9.9% stake in BPL Mobile Communications (which offers mobile services in Mumbai under the Loop brand) and has subscribed to non-convertible debentures of STPL worth Rs1,592 crore.

The DoT has also pointed out that STPL’s share capital was only Rs 1 lakh which implies that the company has a debt/equity ratio of 1,59,200 while adding that this was ‘this was astronomical’ compared to even that of strongly debt leveraged concerns. The DoT has also added that a such as Tata Capital that had unsecured loans of Rs 3,519.48 crore and secure loan of Rs 2,087.62 crore had a debt equity ratio of only 2.69.

“It is clear that Essar Group’s investment in STPL debt is not normal NCD subscription and points to significant financial control of Essar Group over STPL...,” the DoT note added.