M& A rules for telecom cleared
BS REPORTER
New Delhi, 3 December
In a move likely to encourage consolidation in the telecom sector, an
empowered group of ministers ( EGoM) on Tuesday cleared the much-
awaited final merger &acquisition ( M& A) guidelines for the sector.
Also, in a happy surprise for operators, the EGoM decided to increase
the quantum of 1,800- MHz spectrum to be put up for auctions in
January to 403 MHz, an addition of 118 MHz, or 41.4 per cent, to what
it had proposed earlier.
The addition also means that an average 18 MHz of spectrum will be up
for sale in each circle — enough for three to four operators.
"An acquirer will have to pay the differential between the
auctiondetermined market price and the administrative price for
anything beyond 4.4 MHz in the GSM band and 2.5 MHz in CDMA, if an
acquired company has got spectrum after paying administrative price,"
said amember of the EGoM.
The M& A guidelines will now be sent to the Union Cabinet for its approval.
The ministers also agreed to increase the earlierproposed 35 per cent
cap on market share ( in revenue, as well as user base) for merged
entities in a circle to 50 per cent. However, if a merged entity
breaches this 50 per cent ceiling in any circle, the companies will
get a year to lower the share to below 50 per cent.
On the three- year lockin period during which companies are not
allowed to transfer equities, the ministerial panel decided to
maintain the status quo for now. " This was in the Notice Inviting
Applications (NIA) and the lock- in period will continue. The issue
needs legal consultation," said the member. The matter is likely to be
sent to the Attorney General of India for legal consultation.
The EGoM's decision, experts say, will benefit incumbent operators
like Bharti Airtel and Vodafone.
Turn to Page 18 >
EGoM also raises quantity of spectrum to be auctioned CLEAR SIGNALS
KeyEGoM decisions
|M& A policy for telecom cleared
|If an acquired firm
has got spectrum at an administrative price, its acquirerwill pay for
its spectrum. Price to be the gap between market and administrative
prices
|The 3- yr period
forwhich transfer of equity is barred will continue; the issue needs
legal opinion |Market share of a merged entity should not exceed 50%
in each circle. If it does, firms will have to bring it down below 50%
in a year
|Govt to auction
403 MHz of spectrum in 1,800- MHz band
|TELCOS TO BENEFIT:
Incumbent ones like Bharti and Vodafone, which got spectrum bundled
with licences at administrative prices
________________________________
Click here to read more...Turn to Page 18 >
Click: Article continued from…M& A rules for
________________________________
M& A rules for telecom cleared
If an incumbent telco acquires another incumbent operator, it will not
have to pay for the 4.4 MHz GSM spectrum, or 2.5 MHz CDMA spectrum,
the acquirer had got as part of its licence agreement. It will only
have to pay market price for the spectrum being acquired. But, if a
new operator — such as Telenor, which has already bought spectrum
through auctions —decides to acquire an incumbent telco, it will have
to pay market- determined price for the spectrum held by the company
it is acquiring. On the other hand, if an incumbent operator buys a
new operator, it will not have to pay anything for the spectrum it
gets after acquisition.
"The price the acquirer will have to pay for spectrum might be a
dampener. However, M& A activities are expected in the situations
where an acquirer would not have to pay for spectrum," said Mohammad
Chowdhury, partner & telecom industry leader, PricewaterhouseCoopers
India.
The 50 per cent market share ceiling also gives incumbent operators
more leeway to acquire other telcos; that would not have been possible
under the 35 per cent rule.
Based on revenue market share, Bharti Airtel and Vodafone, the top two
telcos in India as at the end of June 2013, together had more than 50
per cent share of the market in 15 of the 22 telecom circles. But, in
terms of subscriber base, the two together exceeded 50 per cent market
share in only three circles.
So, Bharti Airtel and Vodafone, if they were to merge, going by their
revenues, a merger would not be possible in 15 circles ( unless they
are ready to bring the combined revenue market share down to less than
50 per cent within a year).
Going by market share in terms of both user base and revenues —where
merged entities would not cross the 50 per cent threshold in any of
the 22 circles —complete mergers are possible between Vodafone and
Aircel, Idea Cellular and Aircel, Reliance Communications (RCom) and
Aircel.
Had the government maintained the market share ceiling at 35 per cent
for both revenue and user base, the possible merged entities would
have exceeded the ceiling in most of these cases. For instance, the
combined market share of Bharti Airtel and Vodafone exceeds 35 per
cent in 21 circles by revenues and in 19 circles by subscriber base.
Cellular Operators Association of India ( COAI) Director- General
Rajan Mathews says: " With more spectrum being available in the 1,800-
MHz band, operators are likely to shift their voice business in this
band and use 900MHz spectrum for LTE. I think we are happy. Also, the
new M& A guidelines is likely to offer telcos the room to do some
cherry picking." According to a Department of Telecommunications (
DoT) source, the value of the entire 403 MHz of spectrum at reserve
price translate into ₹ 36,000 crore. The additional spectrum the
government auctions in January next year will come from the reserve
that DoT has kept aside for refarming of 35 licences in the 21 circles
that come for renewal between 2014 and 2016. As the government has
decided to abolish reservation of spectrum for incumbent players, an
additional 87.5 MHz of 1,800- MHz spectrum will be available for
auction in January.
Besides, 27.8 MHz of 1,800MHz spectrum is there in nonmetro circles
with the 15 telcos whose licences will be due for renewal between 2015
and 2016. These could also be auctioned. Earlier, DoT had said it
would auction 285 MHz of spectrum in the 1,800- MHz band.
"The quantum available in an auction plays a very important role in
determining fair price for spectrum, capacity of operators to pay for
the quantum they acquire, quality of services, etc. The EGoM decision
to increase the quantum will be very positive for the industry, as a
lower availability of spectrum might have led to aggressive bidding by
operators, who would have ended up paying very high price," said
Hemant Joshi, partner, Deloitte Haskins & Sells.
>FROM PAGE 1
Key Bills on plate, but fate uncertain
BS REPORTER
New Delhi, 3 November
In its renewed bid to push through economic reform legislation, the
United Progressive Alliance ( UPA) is bringing a clutch of Bills to be
considered and passed in Parliament's winter session, which begins on
Thursday. However, given the time and political constraints, there is
little certainty over passage of these Bills.
The session is scheduled to be of only 12 days, but efforts are
underway to build a consensus among parties to extend it.
Parliamentary Affairs Minister Kamal Nath said he would be in touch
with MPs from the Northeast and the southern states and see if they
could be made agreeable to returning to work after the Christmas break
and the New Year holidays.
Among the important Bills the government hopes to discuss and pass
during this session are the Direct Taxes Code Bill, 2010; the
Insurance Laws Amendment Bill, 2008; the Public Debt Management Agency
of India Bill, 2013; the Coal Mines ( Conservation & Development) (
Amendment) Bill, 2012; and the Coal Regulatory Authority Bill, 2013.
The Direct Taxes Code Bill, which seeks to replace the archaic Income-
Tax Act governing collection of direct taxes, is already in the Lok
Sabha but yet to be discussed and passed. The Insurance Laws Amendment
Bill, which will allow foreign investors to hold up to 49 per cent
capital in India's insurance sector and allow nationalised general
insurance companies to raise funds from the capital markets, has yet
to get the green light from the main Opposition, the Bharatiya Janata
Party. The Bill is currently pending in the Rajya Sabha. The Coal
Mines (Conservation and Development) ( Amendment) Bill, 2012, is in
the Lok Sabha and will allow the Central government to conserve coal
and develop mines by levying excise and Customs duties.
A coal regulator will get statutory authority via the Coal Regulatory
Authority Bill 2013. This legislation comes at a time when the
government is contemplating major reforms in the coal sector including
give a bigger role the private sector players in mining and production
of coal. The draft Bill for setting up a Coal Regulatory Authority was
approved by the Cabinet in June this year.
All of the 2013 Bills are to only be introduced; there are chances
these will be referred to the standing committee. So, the likelihood
of their passage in this session is low.
The winter session of Parliament is possibly the last one during the
current UPA term when legislative business will be done. The next one,
the Budget session, will only see a discussion on a joint address to
the two Houses by the President of India, customary in the first
session of the year. The passage of the Vote on Account, till the next
government assumes office following general elections in 2014, will be
the other priority for the government.
Several ordinances have to be passed by the two Houses as Bills. These
include the Readjustment of Representation of Scheduled Castes &
Scheduled Tribes in Parliamentary and Assembly Constituencies Bill,
2013; the Securities Laws ( Amendment) Bill, 2013; and the Indian
Medical Council (Amendment) Bill, 2013.
WINTER SESSION OF PARLIAMENT ON THE TABLE
Key items of govt business for the winter session
|4Bills to replace ordinances |8Bills passed by the Rajya Sabha but
pending in the Lok Sabha |7Bills passed by the Lok Sabha but pending
in the Rajya Sabha |2financial Bills |5Bills for introduction 10 Lok
Sabha |BILLS FOR CONSIDERATION AND PASSING: 3Rajya Sabha
Foreign bankers line up to meet Rajan after subsidiary promise
Seven honchos met RBI chief last month on hopes of ' near- national'
treatment for WOS
SOMASROY CHAKRABORTY Kolkata, 3 December
Top executives of foreign banks are making a beeline for appointments
with Reserve Bank of India (RBI) Governor Raghuram Rajan. The agenda,
among other things, is to discuss the subsidiarisation of foreign
banks in India, say people familiar with the development.
Following the central bank announcing the final norms on wholly- owned
subsidiaries (WOS) of foreign banks last month, the reciprocity clause
in the norms is seen as a barrier to allowing foreign lenders
unfettered branch access. This is because the US and several countries
in Europe have a conservative approach towards foreign banks. Though
RBI has promised " near- national" treatment to foreign lenders if
they convert their branches into subsidiaries, it added a caveat,
saying the policy was guided by the two cardinal principles of
reciprocity and a single mode of presence.
Sources said in the past month, at least seven senior bankers,
including global chief executive officers, had met the RBI governor.
And, a few more are scheduled to do so in the next few weeks. Regional
heads of European and American banks have also met or are scheduled to
meet the RBI governor.
"The discussions have been wide, ranging from global economy to
opportunities in India.
The topic of subsidiarisation has also been discussed," a source said,
on condition of anonymity.
According to sources, bankers have indicated additional concessions
have to be offered for foreign banks to convert their India branches
into WOS.
"One of the concerns is reciprocity.
Foreign banks will want near- national treatment in branch expansion
if they decide to set up subsidiaries here. They don't want a
situation in which they create the subsidiary but are not permitted to
open branches freely," said an industry source.
On November 6, RBI had released the framework for setting up wholly-
owned subsidiaries by foreign banks in India. It had said it would
incentivise foreign lenders to persuade them to convert their branches
here into subsidiaries.
RBI clarified foreign lenders wouldn't have to pay capital gains tax
and stamp duty to set up subsidiaries here. If they opt for the
subsidiary mode, lenders will also be permitted to acquire local
private banks.
Foreign banks have also been promised " near- national treatment" in
branch expansion to set up WOS in India, subject to the reciprocity
clause.
But most foreign lenders were unimpressed and appeared reluctant in
setting up subsidiaries here.
They said lack of clarity on certain areas of taxation, the
reciprocity clause, stiff priority sector lending targets and the need
for rural presence had made them hesitant in opting for
subsidiarisation.
THE INDIA OPPORTUNITY
|Regional heads of European and American banks have met or are scheduled to meet
RBI Governor Raghuram Rajan ( pictured)
|Following the central bank announcing the final norms on wholly-
owned subsidiaries of foreign banks last month, the reciprocity clause
in the norms is seen as a barrier to allowing foreign lenders
unfettered branch access |Though RBI has promised " near- national"
treatment to foreign lenders if they convert their branches into
subsidiaries, it added a caveat, saying the policy was guided by the
two cardinal principles of reciprocity and a single mode of presence
|RBI clarified foreign lenders wouldn't have to pay capital gains tax
and stamp duty to set up subsidiaries here |According to sources,
SKS Trust Advisors questions MD's re- appointment
Alleges irregularities at the
BS REPORTER
Kolkata, 3 December
SKS Trust Advisors, one of the largest shareholders in SKS
Microfinance, on Tuesday questioned the re- appointment of M R Rao as
managing director ( MD) of the company, claiming the micro- lender did
not conduct its annual shareholders meeting according to regulations.
It has written to the Securities and Exchange Board of India ( Sebi),
alleging irregularities in SKS 10th annual general meeting ( AGM),
held in Mumbai on Tuesday.
"It may be of interest to note that one of the special resolutions
—item number seven pertaining to ESOPs [ employee stock ownership
plan] for employees — was defeated, while some of the other
resolutions, specially item number five relating to re- appointment of
MD, barely scraped through. We believe if the incomplete proxies were
precluded from the valid votes as decided by the scrutinisers, the
results may well have been different," SKS Trust Advisors wrote in its
letter to Sebi.
SKS Trust had 12.6 per cent stake in the microfinance company at the
end of September, data available on the BSE showed. Only a few months
ago, it had requested the micro- lender to induct Vikram Akula as its
nominee on the board. Biksham Gujja, chairperson of the trustees of
SKS Trusts, is known in the industry as a close friend of Akula.
In 2011, Akula had to step down as the chairperson of SKS
Microfinance, following alleged conflict between him and other board
members over the running of the company.
The micro- lender did not allow Akulas re- entry in the company as it
felt its shareholders did not have the right to nominate directors.
SKS Trust Advisors alleged the register of proxies was not produced by
SKS Microfinance for inspection, despite requests from the
shareholders.
Also, the proxy closure time was not mentioned. The authorisation
letters of proxies submitted by five entities —Crown Capital, Kismet
SKS, Kumaon, Westbridge and Sandstone — were allegedly not
authenticated by the respective authorities.
"Our representatives pointed out the anomalies to the scrutinisers for
the AGM... and handed over a written complaint in this regard but they
refused to acknowledge the written complaint despite repeated
requests. They also do not seem to have taken cognisance of the
complaint made by SKS Trust representatives," it said.
It requested Sebi to direct the micro- lender to hold back the poll
results till an independent probe was conducted to verify the true
facts and a recount of the valid votes cast by proxies. " We request
for the re- verification of the proxies/ authorisation letters pointed
out by our authorised representatives and order for recounting of the
votes cast by the valid members/ authorised representatives/ proxies
in the presence of representatives of SKS Trust," it said.
SKS Microfinance, however, claimed that there were no irregularities
in the AGM. "The entire AGM, including the voting process, was
conducted according to the existing rules and regulations," a
spokesperson of the company
told Business Standard.
micro- lenders AGM
SKS Trust Advisors alleged that the register of proxies was not
produced by SKS Microfinance for inspection despite requests from the
shareholders
Division of labour pain
Vivisection of states leaves a trail of blood and fire. The embers of
conflict last for decades. Squabbles over division of assets, sharing
of capital and interstate litigation in the Supreme Court over border
villages tinged with regional chauvinism rumble on for a long time.
The sufferings of employees of state undertakings caught in the
discord are hardly noticed.
The provisions of the Companies Act and labour laws are flouted and
many workers are reduced to starvation and driven to suicide,
as revealed in the recent case, State of Jharkhand vs Harihar Yadav.
Bihar was bifurcated and Jharkhand was created in 2000. Several
industrial workers were caught in the pangs of this partition.
A list of companies was produced in the Supreme Court in 1999. One
typical section of workers caught in the cleft was those of Jharkhand
Hill Area Lift Irrigation Corporation ( JHALCO) and Bihar Hill Area
Lift Irrigation Corporation (BHALCO). Their plight was worse than that
caused by natural disaster, according to the court. Bihar dragged in
the central government too and asserted that BHALCO is not JHALCO and
the liability belonged to others. The arguments were returned with
equal vigour by the other governments.
The judgment wondered: " How is the court required to react in law
when the workers are forced to grapple with a colossal predicament
making them feel that they are neither here nor there? We consider it
as an unbearable tragedy faced by the unfortunate employees warranting
serious attention of this court, for some employees have breathed
their last due to starvation, constant stress being unable to meet the
keen demands of appetite, and the impecuniosity (sic) that hampered
them to avail (sic) timely treatment, and some families have been
unwillingly driven to a state of unmeaningful (sic) survival – an
animal existence –sans proper food, sans clothes and sans real
shelter. It is not because of any natural calamity beyond human
control but because the two states abandoned their responsibility to
pay despite availing work for some years and thereafter disowning them
and nonchalantly shifting the burden to other's shoulder and
ultimately arguing in chorus that the employees or their survivors can
initiate winding up proceedings to get their dues." The litigation is
continuing in the high court with occasional trips to the Supreme
Court. The employees have not received wages since 1995, though their
counsel continues to carry a long list of names and dues owed to each
of them. Last fortnight, the court asked the Bihar government to pay
the wages, with pay revisions and interest, from 1995 till 2001.
Jharkhand will pay the dues from 2001 till 2004 when adecision was
taken to liquidate the company whose identity and ownership are
disputed by the states. The 55- page order can still be nick- picked
by clever lawyers for further litigation and their own enrichment. For
instance, both the hostile states have been asked to sit down and
compute the dues to the workers. They require long lives to get the
dues in hand, with middlemen and extortionists waiting in the wings.
The Supreme Court has declared in several judgments that the state
should behave like a model employer. In the 1981 judgment, Som Prakash
vs Union of India, the court stated: " Social justice is the
conscience of our Constitution, the state is the promoter of economic
justice, the founding faith which sustains the Constitution and the
country is Indian humanity. The public sector is a model employer with
a social conscience, not an artificial person without soul to be
damned or body to be burnt." This has been a recurring theme of the
apex court, indicating that its hope and trust have been belied by
government undertakings. Long passages on the duty of the welfare
state can be found in the judgments,
Gurmail Singh vs State of Punjab ( 1987) and State of Haryana vs Piara
Singh ( 1992). After the economic liberalisation, these companies are
in a stickier financial situation, with not enough money even to
pilfer. Still the court continues its call; only the language has
grown more flowery: " It should always be borne in mind that
legitimate aspirations of the employees are not guillotined and a
situation is not created where hopes end in despair. Hope for everyone
is gloriously precious and a model employer should not convert it to
be deceitful and treacherous by playing a game of chess with their
seniority. A sense of calm sensibility and concerned sincerity should
be reflected in every step. An atmosphere of trust has to prevail and
when the employees are absolutely sure that their trust shall not be
betrayed and they shall be treated with dignified fairness then only
the concept of good governance
can be concretised." ( Bhupen Hazarika vs State of Assam).
Despite the Supreme Court's call to government undertakings to be
model employers, they are often as bad as private entities
OUT OF COURT
MJ ANTONY
SAT to dispose of RIL insider trading case this month
BS REPORTER
Mumbai, 3 December
The Securities Appellate Tribunal ( SAT) on Tuesday said that the
appeals filed by Reliance Industries Limited (RIL) in the insider
trading case would be disposed of this month itself. The tribunal
slammed both RIL and Securities and Exchange Board of India ( Sebi)
for seeking frequent adjournments in the case.
SAT adjourned the next hearing to December 20 after Sebi sought time
to provide documents sought by RIL.
JP Devadhar, presiding officer, SAT, said, " We are concerned about
the case as it is of 2010. Both the parties are responsible for
delaying the closure of this case. We want to dispose of the case by
the end of December." Devadhar said no further adjournments will be
granted in this case.
RIL's appeals before SAT are pertaining to the matter in which its
consent application was rejected by Sebi and also the market
regulators refusal to provide documents it had sought pertaining to
the case.
The tribunal, which hears on appeals made against Sebi, also asked RIL
not to change its stance on the number of documents it wants.
RIL counsel Janak Dwarkadas on Tuesday asked for eight more documents
from Sebi related to the case. The counsel, had earlier, said that the
company needs the documents in order have a meaningful dialogue with
Sebi.
The insider trading case dates back to 2007, when RIL had allegedly
made unlawful gains of around ₹ 513 crore by trading in the shares of
erstwhile Reliance Petroleum (RPL) during the merger between the two.
Sebi, which investigated the matter in 2008, had issued a showcause
notice to RIL in the case in 2010. RIL and Sebi, in 2011, were in
talks to settle the case through the consent route.
However, the regulator later decided not to settle the case through
the consent route.
Last year, Sebi had tightened the norms for settling cases through the
consent process.
In a circular issued in May 2012, Sebi had said serious offenses, such
as insider trading and front running, will be kept out of consent
settlement.
The consent process, is a settlement of regulatory proceedings between
Sebi and alleged violator without admission or denial of the guilt.
The market regulator imposes a fine and also a voluntary ban in some
cases, while settling cases through consent.
Tribunal slams Sebi, RIL for constant adjournments; next hearing on Dec 20
The insider trading case dates back to 2007, when RIL had allegedly
made unlawful gains of around ₹ 513 crore by trading in the shares of
erstwhile Reliance Petroleum ( RPL) during the merger between the two
EOW asked to submit NSEL board meeting minutes
BS REPORTER
Mumbai, 3 December
While hearing the MMTC- National Spot Exchange Ltd ( NSEL) case on
Tuesday, the high court here asked the Economic Offences Wing ( EOW)
of the Mumbai police to file the minutes of all NSEL board meetings
held since the inception of the exchange.
MMTC had filed the case against NSEL to recover dues of ₹ 228 crore.
On Tuesday, MMTC counsel told the court former NSEL managing director
Anjani Sinha had been made a scapegoat in the case. MMTC said Jignesh
Shah, managing director and chief executive of Financial Technologies
( promoter of NSEL) and other directors were aware of the fraud.
The EOW had inspected the books of NSEL, as well as the minutes of the
board meetings, and found many directors had signed board minutes
without attending those. This, the police had ascertained by tracking
the mobile phones of the directors. It said the circles in which the
phones were present were different from those where the meetings were
held.
Meanwhile, former Multi Commodity Exchange (MCX) director Joseph
Massey on Tuesday went to the Forward Markets Commission office to
crossexamine accounting firm Grant Thornton, which carried out the
forensic audit of NSEL. Earlier, FMC had issued a show- cause notice
to Financial Technologies, Jignesh Shah, Joseph Massey and others,
challenging their ' fit and proper' status for running MCX, as they
were on the board of the crisis- hit NSEL. Financial Technologies had
raised several questions against the forensic study report, which the
accounting firm had replied to. As the crossexamination is now over,
FMC will take adecision on the ' fit and proper' status of Shah,
Massey, etc.
MMTC said Jignesh Shah, MD & CE, Financial Technologies (promoter of
NSEL) and other directors were aware of the fraud
--
CS A Rengarajan
9381011200
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