No FDI till new merger & acquisition rules are in place | india | Hindustan Times
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No FDI till new merger & acquisition rules are in place

india Updated: Jul 17, 2013 23:30 IST
Manoj Gairola

The government's decision, on Tuesday, to hike the foreign direct investment (FDI) limit in the telecom sector to 100% from the existing level of 74% is expected to provide a huge breather to some of the domestic operators.

The promoters of at least three Indian telecom companies are believed to have held preliminary talks with some multinationals to either sell out completely and exit the sector or dilute substantial equity to repay debt.

However, they will have to wait for at least five to six months before the discussions with potential buyers can make progress. This is because the new mergers and acquisitions (M&A) guidelines are not yet in place.

According to IT and communications minister Kapil Sibal the relevant norms will be in place by September 15. However, officials of the Department of Telecommunications said it may take longer.

There are other issues as well. In November last year, the empowered group of ministers (EGoM) on telecom decided that a company buying an existing operator will have to pay the government the differential of the administered price at which spectrum was allotted to incumbent and the market price of the spectrum.

For example, if the market price of 5 MHz of pan-India spectrum is R14,000 crore and the incumbent operator has paid R1,650 crore, then the new operator will have to pay the difference, ie, R12,350 crore, to the government.

“If implemented, this will completely change valuations in the telecom sector,” said BK Syngal, former chairman and managing director of Videsh Sanchar Nigam Ltd.

And finally, there is the issue of political uncertainty. Large investors may want to wait for the outcome of the Lok Sabha elections due next year before deciding to commit funds to India.