Hutch call now forwarded to Aircel

NEW DELHI: L’affaire Hutch, while continuing to hog the government’s attention, seems set to open a Pandora’s box. Following the investigation into Hutch-Essar’s FDI make, the government is now planning to investigate all foreign equity transactions in the telecom sector, starting with Aircel Cellular’s takeover by Malaysia’s Maxis. The government is reportedly examining the alleged violation of FDI norms by some companies, brought to its notice by NGOs and other agencies, sources said, adding that some prima facie evidence against Aircel was being looked into.

The shareholding of Indian minority investors Analjit Singh and Asim Ghosh in Hutch-Essar has brought the issue of direct and indirect FDI in the telecom sector to the forefront. According to sources, the 74% foreign equity cap in the telecom sector is based on various considerations including the sector’s economic sensitivity and national security. It is the government’s job to check and ensure that rules are not breached, sources said.

Incidentally, the home ministry has always maintained that the telecom sector is of strategic interest and the government should adopt a cautious approach while allowing FDI in the telecom sector. Malaysian telecom major Maxis acquired 74% in C Sivasankaran-promoted Aircel for $1.1 billion, with the Reddy family holding the rest, in December 2005. The transaction has caught the government’s attention after Maxis informed the Malaysian stock exchange Bursa Malaysia about its holding structure in Aircel.

With equity interest of 74% in Aircel, comprising 65% direct interest and 9% indirect interest and 100% subscription of cumulative redeemable non-convertible preference shares in Deccan Digital, this effectively gives the group 99.3% economic returns from the investment in Aircel,” states a Maxis disclosure.

Maxis reaffirmed in its quarterly results, “The group (Maxis) has ac-counted for the Indian operations’ results as a 26% associate using equity accounting from January 6, 2006, to March 20, 2006 (74 days), and subsequently consolidated as a subsidiary of the group at 99.3% economic interest.”

Simply put, Maxis funded almost the entire investment of the Reddy family in the deal. This gives Maxis the right to buy out the Reddy stake in Deccan Digital Networks (DDN). DDN, a JV between Maxis and the Reddys, owns 35% of Aircel. DDN had bought this 35% for $378 million and, of this, $10 million was raised as equity. The remaining was raised via preference shares, with the Reddys direct in-vestment amounting to under $8 million. The remaining amount was through quasi-debt, funded almost completely by Maxis.