Cabinet Clears 74% Telecom Fdi

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NEW DELHI: The telecom industry’s long wait seems to be finally over. The Union Cabinet has approved a rise in the foreign investment limit in telecom services firms to 74% from 49%.

The total holding of Indian public sector banks and Indian public sector financial institutions will be treated as ‘Indian’ holding. Foreign shareholding in the public sector banks and financial institutions will not be counted towards FDI ceiling of 74% in the telecom service sector. However, foreign shareholding in Indian private sector banks, such as ICICI, IDBI and HDFC, would be considered as foreign equity.

Existing telecom companies will get a period of four months from the date of the notification to comply with the 74% FDI cap. It is believed that telecom companies like Hutch and Spice currently have foreign holdings beyond 74% through the pyramidical structure which they will have to limit to the 74% FDI cap in the next four months. Telecom licencees will be required to disclose the status of foreign holding on a half-yearly basis.

Under the new norms, the 74% foreign investment can be made directly or indirectly in an operating company or through a holding company. The remaining 26% will be owned by resident Indian citizens or an Indian company. However, any foreign stake held in the Indian company will be counted in the 74% cap.

ET had reported, in its Thursday edition, that the Cabinet would take a call on the issue today.

FDI would include FIIs, NRI, Overseas Commercial Borrowing, FCCB, ADRs, GDRs, convertible preferential shares, proportionate foreign investment in Indian promoters, and investment companies including their holding companies.

It has also been clarified that no remote access (RA) shall be provided to any equipment manufacturer or any other agency outside the country for any maintenance/repairs by the licencee. However, RA may be allowed for catastrophic software failure that would lead to major part of the network becoming non-functional for a prolonged period. DoT will define the terms of catastrophic software failure.

The RA, in these cases will be subject to certain conditions. An identified government agency like Intelligence Bureau will be notified when the RA is to be provided. the RA password will be enabled for only a definite period and for access from pre-approved locations. The control of RA will have to be within the country.

The government has put stiff conditions while liberalising FDI ceiling. These conditions are meant to take care of the “national security” concerns raised by the Left parties, who had stiffly opposed the move. The policy envisages that the majority directors on the board, including chairman, managing director and CEO, should be resident Indians. This condition should be specifically incorporated in the share holders agreement. The CTO and CFO should be resident Indian citizens.

The licensor shall also be empowered to notify any key position to be held by resident Indian citizens.

Hutch and Bharti would be the major beneficiaries of the increased FDI limit. Hutch is planning to go for an IPO. The new FDI norms would help FIIs to buy equity in it from the secondary market. Moreover, it would be able to clean its existing structure.

Sunil Mittal, chairman Bharti Televentures told ET: “I am delighted that finally the notification has been approved. Now we expect large investments to flow in the telecom sector.”

http://economictimes.indiatimes.com/articl...840,curpg-1.cms

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DoT to issue FDI norms post-Diwali

Moving to the next step after cabinet approval, the Department of Telecom will issue guidelines on the change in FDI norms to 74 per cent from the current 49 per cent in the second week of November and thereafter amend the Unified Access Service Licenses to close the process.

Besides issuing new guidelines after Diwali, DoT concurrently will go for amendment of UASL licenses to incorporate the clauses of the change in the norms, sources said.

Though, the telecom industry is upbeat about the Government's nod to increase FDI to 74 per cent from 49 per cent, the task of absence of issuance of guidelines and amendment of USAL licenses still remains in the long-drawn battle.

According to the new guidelines, total holding of Indian public sector banks and Indian public sector financial institutions will be treated as "Indian" holding.

Foreign shareholding in the public sector banks and financial institutions will not be counted towards FDI ceiling of 74 per cent in the telecom service sector. However, foreign shareholding in Indian private sector banks, such as ICICI, IDBI and HDFC, would be considered as foreign equity.