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INDIA
BUSINESS WORLD -
OCTOBER 2005
THE MONTH THAT WAS
TELCOS CAN RING IN 74% FDI
This is the call
mobile and fixed line telephone operators have been waiting
for. The Cabinet has cleared the hike in foreign investment
limit in telcos to 74% from 49%. Foreign equity in public
sector banks' holding stakes in telcos will not be included
in the 74% ceiling.
Existing telecom
companies will get 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
in excess of 74% through pyramidical structure, which they
will have to reduce. Telcos will be required to disclose the
status of foreign holding on a half-yearly basis.
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. "I
am delighted that finally the hike has been approved. Now
we expect large investments to flow in the telecom sector,"
Bharti Televentures chairman Sunil Mittal said.
Unnder 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.
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.
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