FIPB defers decision on Hutch deal

NEW DELHI: Representatives of Vodafone, Bharti and Essar have been summoned by the Foreign Investment Promotion Board (FIPB) for ‘informal’ discussions even as the Board on Tuesday deferred its approval for Vodafone’s acquisition of Hutchison-Essar (HEL). Sources said the FIPB “could not clear Vodafone’s application on technical grounds” since the RBI had not submitted its report on the inputs sought by the finance ministry.

The apex bank has been asked to furnish its report on the issue within a week, the source said. The discussions with the three stakeholders would be ‘informal’ and all efforts are being made to ensure ‘transparency’ to make the FIPB screening free of controversy, they added. Officials have been asked to consider all aspects ‘in detail’ so that a clear picture is ensured.

For Vodafone, which last month had picked up 67% stake in Hutchison-Essar — India’s fourth-biggest cellular firm — the FIPB move implies that it will have to wait a bit longer for the requisite regulatory approvals to close the deal. The FIPB can only consider Vodafone’s application after the government completes its examination of the shareholding structure of HEL. This is because the finance ministry has sought the RBI’s and DoT’s comments on whether the 12.26% shareholding of HEL MD Asim Ghosh and Max India chairman Analjit Singh amounted to violations of the Foreign Exchange Management Act and the country’s FDI norms. “While DoT has given its nod for the deal, the RBI has sought additional time for submitting its report and this led to the deferment,” the source added.

ET had first reported last week that the FIPB had has called for a ‘surprise’ meet on March 20 to clear Vodafone’s application after representatives from both the UK-based company and its Indian partner Essar had met the finance secretary seeking an early clearance.

Earlier this month, Delhi-based NGO, Telecom Watchdog, had filed a PIL in the Delhi High Court, alleging that the FDI in Hutchison Essar was more than the permissible 74%. While there was no official confirmation, sources said the NGO had faxed a communication to the finance ministry on Tuesday to provide some details on the Hutch deal.

Vodafone CEO Arun Sarin had told reporters last week that the company was in “compliance with the FDI norms of India” and had furnished all the data sought by the FIPB. Mr Sarin also clarified that Mr Ghosh and Mr Singh “were shareholders in their own right” although Vodafone held long-term rights against these shares. “Should either (Mr Ghosh or Mr Singh) decide to exit, Vodafone has the right of first refusal,” he had said. He also slammed accusations that Vodafone was the actual owner of equity held by Asim Ghosh and Analjit Singh: “It is preposterous to think Vodafone is owning their shares.”