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DCA seeks details about Hutchison equity pattern

G. Rambabu
Richa Mishra

The department's attention has been drawn to the fact that despite sticking to the 49 per cent FDI cap in telecom, the Hong Kong-based company has managed to acquire management control indirectly through a "complex financial engineering exercise''.

NEW DELHI, Feb. 25

IN a move that could put global telecom major Hutchison Whampoa's India plans in a spot, the Department of Company Affairs (DCA) has sought a detailed explanation of the equity holding pattern of its cellular ventures in Mumbai, Delhi, Kolkata and Gujarat.

The department's attention has been drawn to the fact that despite sticking to the 49 per cent FDI cap in telecom, the Hong Kong-based company has managed to acquire management control indirectly through a "complex financial engineering exercise''. According to official sources, the Department of Telecommunications (DoT) has for long objected to management control by foreign investors in the telecom sector. However, it was unable to persuade the Ministry of Finance to amend the preference share issue guidelines, though this was being made possible.

At present, allotment of non-convertible preference shares remains outside the FDI sectoral cap, which enables these companies to allot 100 per cent non-convertible preference shares to their foreign promoters. This, in effect, allows them to acquire management control.

The Finance Ministry had earlier rejected the suggestion saying that the preference share guidelines could not be altered for protecting the interests of just one sector. The other reason for rejecting the request is that over the last few years, issuance of preference shares had emerged as the preferred investment route for both Indian promoters and foreign investors.

Any move to amend the guidelines may hamper FDI inflows into the country, it had said. However, following persistent pressure from the DoT, the DCA has taken up the issue for consideration.

"An early solution to the problem was essential. We have to be fair to both the sides,'' sources said. Meanwhile, an inter-ministerial meeting is scheduled on March 5 to review the preference share guidelines for foreign investors.

At present, Hutchison Whampoa runs its operations through its subsidiary, Hutchison Telecom, in the four circles - Mumbai (Hutchison Max), Delhi (Hutchison Essar), Kolkata (Commandcell) and Gujarat (Cellforce).

Hutchison Max is a joint venture of Hutchison and Max India. The other stakeholders are Distacom and Kotak Mahindra. In Delhi, the other stakeholders in Hutchison Essar include Essar and Kotak Mahindra.

In Gujarat operations, the others include the Hinduja Group, and Kotak Mahindra. In Kolkata, Hutchison and Usha Martin have come together under the brand Commandcell.

The company's cellular operations are, at present, one of the biggest players in the sector having control over 20 per cent of the existing market.

According to the latest estimates of the Cellular Operators Association of India (COAI) it accounts for 11.57 lakh subscribers just behind Bharti, which has logged 11.84 lakh.

Batata has a subscriber base of 6.7 lakhs, while BPL has a subscriber base of 8.83 lakhs.

The Batata-BPL proposed combine would have a total subscriber base of 13.6 lakhs, excluding BPL's Maharashtra operations. However, the deal is yet to materialise, which leaves Hutchison as the second biggest cellular operator in the country.

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