Concern over Telenor's stake going up to 74% if Unitech does not subscribe

Uninor's proposal to raise Rs 8,500 crore through a rights issue could hit fresh regulatory trouble with the Department of Telecom, Ministry of Home Affairs and the Department of Revenue opposing the proposal on different grounds.

The Revenue Department has objected to the proposal on grounds of treaty shopping. The rights issue could result in Norway's Telenor increasing its shareholding in Uninor from 67.25 per cent at present to 74 per cent through Singapore registered Telenor Asia Pte Ltd.

According to the resolution passed by the company, if Unitech subscribes only to a part of its pro rata proportion of the rights issue, or does not subscribe at all, then Telenor will subscribe to the balance portion. According to the Department of Revenue, since the rights issue could change the FDI levels in the company, it should be checked for tax avoidance before the scheme is approved.

The Ministry of Home Affairs has reiterated its earlier concern about Telenor's holding in Pakistan. Security agencies have expressed their reservation against allowing Telenor to increase its stake. Recently, the Government had disallowed UAE-based Etisalat's proposal to increase its stake in Etisalat DB on security grounds.

The Department of Telecom wants the proposal to be put on hold because there are pending issues with the company's plans to merge all its operations into a single entity. Unitech had acquired 2G mobile licences under eight subsidiaries and it has since merged all of them into Unitech Wireless (Tamil Nadu). But the DoT has not yet given its approval to this merger.

Although the Foreign Investment Promotion Board has given its clearance to the rights issue, top Government sources said that the concerns will be raised with the Cabinet Committee on Economic Affairs (CCEA). The CCEA is the final decision making body for all FDI related proposals.

This comes even as Telenor and Unitech are at loggerheads over the rights issue. While the Norwegian company wants to push through with the issue to raise funds, the Indian partner thinks that the move is detrimental to Uninor's interest.

Telenor had earlier said that it could look for another Indian partner if Unitech did not subscribe to the rights issue. When contacted Uninor spokesperson said, “The FIPB and CCEA have earlier already scrutinised every aspect of Telenor Group's investment into India and then approved it. Since we are not privy to any internal processes of the FIPB, we are unable to respond specifically at this time.” Unitech and Telenor did not comment.

tkt@thehindu.co.in

(This article was published on November 29, 2011)
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