The complex equity structure of Aircel Ltd has come under the lens of the Department of Telecommunications (DoT) for possible violations of foreign direct investment (FDI) rules.
Malaysian billionaire T Ananda Krishnan-owned Maxis acquired 74% in Aircel in 2006, paying $1.1 billion through various subsidiaries to the Indian promotors of the telecom company.
Chennai-based Reddy family, founders of Apollo Hospitals, got 26% equity in the $1.1-billion Aircel for $7.6 million (ie, 0.76% of Aircel's total value).
Later, Maxis informed the Malaysian stock exchange that it owns 99.3% "economic interests" in Aircel.
"This is a new fact that has come before us. We will soon start investigations into the matter," said a DoT official.
Norms permit only up to 74% FDI for a telecom operator.
"The group has accounted for the Indian operations' results as a 26% associate using equity accounting from January 6, 2006 to March, 2006 (74 days) and subsequently consolidated as a subsidiary of the group at 99.3% economic interest from March 21, 2006 to March 31, 2006," Maxis Communications' quarterly report for the quarter ended March 31, 2006 said.
It all seems to have begun with Maxis subsidiary, Global Communications Services Holdings Ltd, buying 26% equity in Aircel for $280 million by subscribing to a fresh share issue.
The balance was bought for $800 million in two steps. First, Global acquired 39% directly in Aircel for $422 million. Next, Global and the Reddys formed a joint venture - Deccan Digital Networks Pvt Ltd - to acquire the remaining 35% in Aircel for $378.8 million.
The Reddys put in $7.6 million to own 74.3% in Deccan Digital; the balance 25.7% was with Global Communications. So, 74.3% of Deccan's 35% stake in Aircel gave the Reddys owners of 26% of the company.
Similarly, coupled with its already acquired 65% in Aircel and a holding of 25.7% in the joint venture's 35% stake, Maxis' holding in Aircel came to 74%.
Later on March 21, 2006, Maxis stated in an announcement on the Bursa Malaysia Stock Exchange that Global had invested $368.6 million in a cumulative redeemable non-convertible preferential share issue by Deccan Digital.
This fresh investment, according to a Maxis report for the quarter ended March 31, 2006, took Maxis's interest in Aircel to 99.3%.
Suneeta Reddy, executive director, finance, Apollo Hospitals and Ananda Krishnan of Maxis did not respond to repeated emails sent to them.