The Foreign Investment Promotion Board (FIPB) has recommended an equity restructuring proposal by the promoters of Koshika Telecom _ the cellular telecom licensee in Uttar Pradesh (West), Uttar Pradesh (East), Bihar and Orissa _ to the Cabinet Committee on Foreign Investment (CCFI) for approval.
Koshika Telecom _ promoted by the Rais of the Delhi-based Usha group _ had proposed to issue zero-interest fully-convertible debentures worth Rs 310 crore to Indian and foreign investors.
The foreign investors who would receive the debentures were a US-based investment investor, Alcatel CIT of France, a consortium of non-resident Indians and other foreign investment companies.
According to the proposal, over Rs 70 crore of the debentures were to be placed with `foreign investment companies'; Rs 31 crore with the
United States investment company; Rs 16.50 crore with the NRI consortium and Rs 3 crore with Alcatel CIT.
Another Rs 189.10 crore of fully-convertible debentures are to be placed with the Rais.
The debentures are to be distributed among the investors in proportion to their proposed shareholding pattern _ 61 per cent Indian holding; 22.70 per cent with `other foreign investment companies'; 10 per cent with the US investor; 5.32 per cent with the NRI consortium; and 1 per cent with Alcatel CIT.
Vineet C Rai, director of Koshika Telecom, hinted that the FIPB clearance was an enabling proposition.
"We haven't finalised the investors we want to place shares with. This (equity restructuring) was engineered to help us get over the problems created after differences in opinion with Piltel (Philippino Telephone Corporation, which originally held 10 per cent stake in Koshika)," he said.
Other sources said the restructuring of equity through the issue of fully convertible debentures was proposed to pay back Alcatel for the supply of equipment.
"The company had trouble capitalising Alcatel after the dispute with Piltel. The issue of debentures could help the company get to financial closure," they explained.
Piltel refused to increase its equity exposure in the company from 10 per cent two-and-a-half years back after Koshika won the licence to operate cellular services in Uttar Pradesh (West), UP (East), Bihar and Orissa. This led to a dispute between the two and a legal battle is on at the Delhi High Court.
Under the present proposal, Piltel's holding in the company has been reduced to Rs 200 (representing 10 per cent of the paid-up equity capital of Rs 2,000). By doing this, the company does not flout the three-year lock-in period for investors in cellular telecom companies.
Of the Rs 400 crore invested in networks in the circles it operates in, promoters have already pumped in about Rs 175 crore by way of fully-convertible debentures and advances. Alcatel has supplied some Rs 208 crore by way of supplier's credit.
While recommending the restructuring proposal to CCFI, the FIPB has noted that "it has to be recognised that the licensee has no other option in view of the changed stand of Piltel and the need to induct finances.
Taking an overall view of the matter and considering the progress made by the part, secretary, DoT (department of telecommunications) emphasised that the proposal be recommended by FIPB."
