DoT rider on offshore telecom M&As
Offshore mergers and acquisitions involving Indian telecom companies, where a foreign firm secures a board position in domestic telecom majors, will require government approval. This is according to a Cabinet note drafted by the department of telecommunications, which has been circulated to other ministries for consultations.
India will also allow foreign chief executives, chief technology officers and chief financial officers in domestic telecom companies, according to the note, which is meant to amend Press Note 5, allowing telecom companies to raise FDI to 74% from the earlier 49%.
Press Note 5 allows only resident Indians to be appointed to these positions, but the draft proposal has mooted that companies with FDI up to 49% can appoint foreign nationals too. Companies that have more than 49% FDI can appoint foreign nationals to such positions but will have to seek clearance from the home ministry.
But the note is unclear about whether the new M&A rule will be applicable prospectively or retrospectively. If it is applicable retrospectively, it will impact Hutchison’s decision to sell 19.3% equity in Indian telecom company Hutchison Essar Ltd’s parent firm Hutchison Telecommunications International to Egypt’s Orascom. The deal got Orascom a 10% beneficial stake and a board position in Hutchison Essar.
But the DoT move is aimed at vetting foreign investments to ensure that unfriendly countries or organisations do not pose a threat to India’s security.
The CEO/CTO proposal though will bring cheer to Tata Teleservices Ltd, which has less than 49% FDI and has Darryl Green, a foreigner, as CEO.
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