The Hindu Business Line : Russian Govt may pick up 20% stake in Sistema Shyam

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Russian Govt may pick up 20% stake in Sistema Shyam

Deal could be aimed at bailing out Sistema.

Our Bureau

New Delhi, March 18 The Russian Government may pick up a 20 per cent stake in Sistema Shyam Teleservices for close to $700 million.

According to company sources, the revised federal budget for the 2009 of the Russian Government has made a provision for the proposed investment. The deal between the Moscow-based Sistema and the Russian Government is being seen as part of a bailout package to help the company service its debts.

Sistema Shyam Teleservices has licences and spectrum to offer CDMA based mobile services across India. The operator launched its service in Rajasthan in October last year and is planning to enter Kerala and Tamil Nadu over the next few weeks under the MTS brand. The company is 74 per cent owned by Sistema Teleservices and the balance is with the Shyam Group.

While a company source confirmed the development, an questionnaire sent through email to Sistema’s India office remained unanswered. Industry watchers said that this was a positive move as it would strengthen Sistema’s finances.

If this deal goes through, it will be the first time that a foreign government would have invested in the Indian telecom sector. According to sources, the stake acquisition could be through issue of fresh equity rather than dilution of the shares of either of the two existing promoters.

This could be done to get around a proposed regulation being considered by the Indian Government to lock in the equity shares held by existing promoters of new telecom companies for a period of three years.

FDI cap

However, the deal has to be in line with the 74 per cent FDI cap in the telecom sector. Since Sistema already has 74 per cent stake in the company, fresh equity may have to be infused through investment vehicles based in India.

The other option would be to buy 20 per cent stake from Sistema but this could be risky if the lock-in rule is implemented with retrospective effect by the Government. The third option would be to take advantage of the latest change in foreign investment rules, which permitted international entities to pick up stake in holding companies without disturbing the FDI limit in the company.

Sistema had earlier announced an investment of $5 billion in India over a five-year period in setting up the network. The Russian major wants to bring its manufacturing arm, Sitronics, into India and was looking to form a joint venture with Shyam’s manufacturing arm.

Eyeing real estate entry

Other than telecom, the company is also looking at entering the Indian real estate space.

Sistema Shyam has also applied for dual technology permit which will enable the company to offer both CDMA and GSM services.

The move from the Russian Government comes on the back of Sistema announcing a 58.6 per cent fall in third-quarter net profit due to a weaker rouble and saw its shares fall despite the results being better than forecast.

Net profit was $99.9 million in December quarter 2008, down from a restated $241 million for the third quarter of 2007.