Blackstone-Eenadu deal caught in legal snarl-up

FIPB approval awaited 7 months after announcement.

Global private equity fund Blackstone's proposed investment of $275 million (Rs 1,130 crore) in Ushodaya Enterprises, which runs the Telugu newspaper Eenadu and TV franchise, is stuck with the information and broadcasting (I&B) ministry seven months after the deal was announced.

Independent observers said this could mean trouble for the country's largest private equity deal in the media space, which requires Foreign Investment Promotion Board (FIPB) clearance.

The FIPB sometimes refers to the ministry concerned before clearing a deal, as it has done in this case.

Sources in the know of the development said the problem lay in a Supreme Court case involving the Andhra Pradesh government and Margadarsi Financiers, an Eenadu group finance company that raises public deposits, over misappropriation of funds.

Last Friday, the court directed Margadarsi to furnish details of depositors who have received payments after their investments matured to enable the Andhra government to verify particulars.

The court, however, ordered a continuation of its interim order restraining the government from attaching or freezing Margadarsi properties. A few months ago, there were raids on Margadarsi's offices but the Reserve Bank of India had given the company a clean chit.

Sources in Eenadu said they did not know why the FIPB clearance was delayed and expressed hope that it would come soon. Blackstone officials said they were committed to the investment, subject to FIPB approval.

When asked, I&B minister Priya Ranjan Dasmunsi said both the FIPB and his ministry were looking into the legal issues involved in the matter. "We hope to arrive at a conclusion soon," he said.

Bankers are, however, sceptical about the fate of the deal. "The fact that the proposal has not come for hearing at the FIPB indicates that all is not well with the deal," said a senior banker.

By comparison, Vodafone's investment in Hutchison Essar, which was a larger deal than that of Blackstone-Ushodaya, received the FIPB's approval in two months despite the controversy surrounding it.

Blackstone had announced its investment plans in Ushodaya in January. It was to have subscribed to a convertible debentures issue that would have translated into a 26 per cent equity stake.