Telecom regulator binds promoters to 3-yr lock-in
Short-term telecom players beware: if recent recommendations of the telecom regulator are accepted, they will not be able to get any return on investment if they sell their stake in less than three years.business Updated: Mar 12, 2009 21:19 IST
Short-term telecom players beware: if recent recommendations of the telecom regulator are accepted, they will not be able to get any return on investment if they sell their stake in less than three years.
Telecom Regulatory Authority of India (TRAI) has recommended a three-year lock in period for sale of first promoters’ — promoters whose stake was taken into consideration while calculating networth of the company when it applied for licences — equity.
If a promoter wants to exit before three years, 50 per cent of the profit earned on sale of transaction will go to the company as a special reserve and can be utilised for telecom network expansion only. The balance 50 per cent of the profit shall be transferred to the government, according to TRAI recommendations.
Additionally, the promoter will have to take prior written approval of the department of telecommunications (DoT) and fulfil all roll out obligations.
As a result, the promoter can only get back his original investment in the company — there will be no incentive for any promoter to sell his equity in less than 36 months.
Adding to his woes, if the promoter wants to pledge his shares, he will have to take prior written permission of the DoT.
TRAI wants that the recommendations should be implemented retrospectively from the date of issue of licence. However, the final decision lies with Ministry of Finance in consultation with Ministry of Law, according to the recommendations.
The recommendations permit issuance of fresh shares by private placement or public issue. However, in such cases the equity of original promoters should not fall below 10 per cent equity in the company.
“TRAI’s recommendations are good for the industry,” said B K Syngal, former CMD of VSNL and senior principal of Dua Consulting. “TRAI should also have included issuance of fresh equity under the purview of windfall tax.”
Earlier, DoT had sought TRAI’s recommendations on this issue as in November the Telecom Commission had approved a three-year lock-in period.