New Delhi, Nov. 21: The government today laid down the rules for entry of foreign paper tigers, but set a few new conditions that could hem in the most ardent overseas investor.
Five months after the Cabinet approved foreign direct investment in the print media, the ministry of information and broadcasting issued guidelines designed to ensure that management and editorial control over news and current affairs publications remains in Indian hands.
While reiterating the point that foreign direct investment in the print media will be capped at 26 per cent, the guidelines said the government will clear only those proposals where stake held by the “largest Indian shareholder” is at least 51 per cent of the total equity. This will exclude the stake held by public sector banks and financial institutions.
In June when the proposal was cleared, the government had not defined the level of Indian stakeholding. At that time, all that I&B minister Sushma Swaraj said was that the Indian shareholding should be significantly higher than the 26 per cent foreign stake.
Today’s guidelines give two broad definitions of the term the “largest Indian shareholder”: the first group will constitute any or a combination of an individual shareholder, a relative of the shareholder within the meaning of section 6 of the Companies Act 1956, and a company or a group of companies in which the individual shareholder or Hindu Undivided Family (HUF) to which he belongs has management and controlling interest.
The second group constitutes an Indian company or a group of Indian companies under the same management and ownership control.
With security concerns uppermost in its mind, the government laid down a clause that said that all parties who together constitute “the largest Indian shareholder” will have to enter into a legally binding agreement to “act as a single unit in managing the matters of the new entity” which will have to be a company registered with the Registrar of Companies under the Companies Act 1956.
The proviso is clearly designed to ensure that no overseas investor is able to take advantage of a dispute among the entities that constitute “the single largest Indian shareholder”.
The guidelines say that while calculating the 26 per cent foreign holding in the new entity, the foreign holding component, if any, in the equity of the Indian shareholder companies of the new entity will be duly reckoned on a pro rata basis so as to arrive at the total foreign holding in the new entity.
This is an interesting clause which indicates that the government has wisened up to what happened in the telecom industry in the Sukh Ram days when the foreign investors used a layered structure of holding companies to get around the FDI limit and thereby also reduced the Indian partner's stake in the operational venture.
The guidelines also say that at least 50 per cent of the foreign investment will have to be inducted through the issue of fresh equity. The remaining 50 per cent may be inducted through transfer of existing equity from the Indian promoter to the foreign investor.
Three-fourths of the members of the board of directors of the new entity and all key executives and editorial staff should be resident Indians.
All proposals for foreign investment will be processed and decided upon by the I&B ministry in consultation with the home ministry and other ministries, as may be required.
It will be obligatory on the part of the new entity to take permission from the I&B ministry before effecting any alteration in foreign shareholding and the stake of the largest Indian shareholder.
The guideline mentions that the company will be liable to intimate the names and details of any foreigners/NRIs to be employed or engaged in the new entity either as consultants (or in any other capacity) for more than 60 days in a year, or as regular employees.