Potentially major roadblock for HUTCH-Vodafone deal

Law Minister to take a call on Hutch. FinMin Seeks Opinion On Asim Ghosh,Analjit Holdings In Co

THE HUTCH-Vodafone deal ran into a potentially major roadblock on Monday with the finance ministry seeking the law ministry’s opinion on the 12.26% stake in Hutchison-Essar held by the company’s CEO Asim Ghosh and Max India chairman Analjit Singh. With the Reserve Bank seeing the multi-layer holding as a possible violation of the 74% foreign direct investment (FDI) ceiling for the telecom sector (as reported by ETin its edition dated March 26), the government now wants a detailed opinion from the law ministry. The development is significant since it could delay Vodafone’s takeover of Hutch-Essar. The Foreign Investment Promotion Board (FIPB) would take up the Vodafone application for consideration only after receiving the law ministry’s opinion, the sources said. Various stakeholders representing the companies concerned have been called for a meeting at the finance ministry on March 28, but the law ministry’s opinion is unlikely to be available so soon, sources said. It is expected that Hutch-Essar’s version of the equity structure would be explained to officials at the meeting on Wednesday. When FIPB considered the Vodafone-Hutch issue on March 20, a decision was deferred since RBI’s opinion was not available. Telecom Watchdog, an NGO, had sent a communication to senior government officials the previous day citing more evidence on the alleged violation of FDI cap. The law ministry will examine the allegation that Asim Ghosh and Analjit Singh were only ‘fronts’ for Hutchison Telecommunications International which was the beneficial owner bearing all economic risks and rewards of this stake, the sources said. If this was true, then aggregate FDI holding in Hutch-Esaar would be 89% since the Esaar Group holds 22% in the company through foreign entities. Mr Ghosh and Mr Singh deny this. They say that they have full voting on their equity and also receive dividend payments. Mr Singh told ET that he has to repay loans taken to purchase his equity stake from his own resources.

Govt wants facts clean before FIPB okay

THE government wants to be sure of all the facts before FIPB clears the Vodafone-Hutch deal, the sources said. It was widely expected that the clearance would come through this week, but the RBI’s seemingly negative view and the decision to seek the law ministry’s opinion have transformed the scenario. While seeking legal opinion, a copy of Press Note 5 (which allows 74% FDI in telecom) has also been referred to the law ministry. According to officials, the crux of the issue referred for legal opinion is the allegation about direct and indirect foreign holding in Hutch-Essar exceeding 74%. Following the mega deal between Vodafone and Hutch, Vodafone International Holdings, a Netherlands-based subsidiary of the UK-based telecom giant, filed an application with the FIPB on acquisition of CGP Investments (Holdings), a Cayman Islands-based company which owns a 42.34% stake in Hutch Essar. CGP Investments also has further interests of 9.62% in Hutch Esaar. The transaction would result in Vodafone acquiring a controlling stake of 51.96% in Hutch-Essar. The finance ministry had referred the issue to the RBI following allegations of benami holding by an MP. The loans to Mr Ghosh and Mr Singh to buy equity in Hutch-Essar is backed by a guarantee from Hutchison.

Courtesy: EconomicTimes

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