DoT will, however, insist that equity partners in such holding companies will not be allowed to sell their stake -- in part or whole -- without its permission.
The Telecom Commission is expected to take a decision to this effect in the next few weeks. DoT had undertaken a review of holding company structures set up by cellular licencees to finance and set up projects, even though former communications minister Sukh Ram had cleared several such proposals in his tenure.
The department's right to vet the sale of equity is likely to be incorporated in the letter allowing licencee companies to float holding company structures. In the three cases in which holding companies were allowed, DoT had insisted that the Indian promoters' stake should not drop below 51 per cent. .
Most cellular operators have decided in favour of holding companies to bring down their share of equity in the licencee company. Typically, the Indian promoter of the cellular company, who had to bring in 51 per cent of the equity, adopted the holding company route. A holding company was floated which would have a 51-49 sharing arrangement between the Indian and foreign partners.
The entire equity of the holding company would then be used to finance the Indian promoters' 51 per cent equity in the cellular licencee company.
The two advantages of this route were: one, the funds requirement would come down; two, the Indian promoters would retain control over the operating company.
A case in point was Modi Welvest. A holding company of Modicom Networks, it has an equity base of $48 million (Rs 165.6 crore) which the B K Modi group shares with AIG on a 51-49 per cent basis. The entire equity of this holding company will be used to fund Modi's 51 per cent equity stake in Modicom Networks, the licencee in Punjab and Karnataka.
However, it was pointed out that Indian equity in the operating company would effectively get diluted. Although the Indian promoter would retain control, he would hold only be 26.01 per cent (51 per cent of 51 per cent of the licensee company). This would give rise to problems of management control over the licencee company, especially if the foreign partner in the holding and licencee companies was the same.
In fact, the FIPB had rejected a joint venture between Shyam Telecom and Telesystems Mauritius Ltd. The 51:49 venture was to channel investment in Hexacomm (a Shyam Telecom-led consortium)'s cellular telecom projects in Rajasthan and the north-east. Shyam Telecom's 40 per cent equity in Hexacomm was to be sourced from the JV.
This would mean that Shyam's final stake in Hexacomm's capital would be 20.4 per cent. DoT had objected the proposal on grounds that the foreign partner in both the holding and licensee companies was the same -- Telesystems holds 20 per cent equity in Hexacomm.
