The Telegraph
Since 1st March, 1999
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Red alert on telecom FDI

Mumbai, April 6: The Left wants the Manmohan Singh government to slam the doors on “undesirable” telecom turks ' specifically British Telecom and Orascom of Egypt.

CPM leader Nilotpal Basu has fired off a letter to the Prime Minister urging the government to exercise greater vigil and ensure that “undesirable elements” don’t manage to carve up lucrative slices of the telecom turf by subverting the guidelines that permit 74 per cent foreign direct investment (FDI) in the sector.

Basu said the Left has been “extremely disturbed” about the shareholding changes in Hutchison Essar (where Orascom of Egypt has picked up an indirect stake of 10 per cent) and British Telecom’s move to set up a joint venture called BT Telecom India Pvt Ltd with Indian partners “who are not clearly identified”.

Basu doubts whether these unnamed partners of BT would qualify as “serious resident Indian investors” as specified under the licensing guidelines of DoT.

The letter comes at a time when the Ruias ' the Indian partners of the Hutchison Whampoa group of Hong Kong ' have written to the department of telecommunications (DoT) protesting against the manner in which Orascom has picked up an indirect stake in Hutchison Essar.

Last December, Hutchison Telecommunications International Ltd (HTIL), the $ 3.1-billion Hong Kong conglomerate, sold a 19.3 per cent stake to Orascom Telecom of Egypt. HTIL has a 42.34 per cent stake in Hutchison Essar, and this thereby gave Orascom an indirect stake in Hutchison Essar.

The Ruias were upset because they had not been informed about HTIL’s stake sale. But even more galling was the fact that HTIL had promised Orascom a board position in Hutchison Essar.

The National Security Advisor MK Narayanan had since written to the DoT that Orascom posed a security threat since it had a dominant status in the telecom industry of both Pakistan and Bangladesh.

Basu said in his letter that the Left was disturbed about “certain investments and shareholding patterns of companies such as Hutchison who either have undesirable investors or have chosen to pass on equity stake to employees in a manner that is clearly undervalued and, therefore, unethical if not illegal.”

The stake sale to employees refers to the restructuring that Hutchison has attempted in the shareholding of Telecom India Investments Ltd (TII) ' a vehicle through which the Hong Kong group routes its investments in Hutchison Essar.

On March 1, Asim Ghosh, managing director of Hutchison Essar, and Analjit Singh of Max India bought out the Kotak group’s stake using loans that were given to them by HTIL. As a result, Telecom India Investments Ltd (TII) ended up with a 19.5 per cent stake in Hutchison Essar.

HTIL has the option to buy back the stake held by the firms owned by Ghosh and Singh within a period of 10 years. This will actually raise HTIL’s stake to 61.9 per cent (including the direct stake of 42.34 per cent). Li Ka-shing’s Hutchison Whampoa will then have an effective stake of a little over 30 per cent in Hutchison Essar.

Basu’s letter also takes a sideswipe at the UPA government for making a strong pitch for raising FDI limits in the hope that this would bring in more investments into greenfield areas. He claims that far from doing this, it has only enabled existing Indian players to sell their stake and transfer control “while earning a massive premium”.

“Today, three months after the hike in telecom FDI, India is yet to see any large scale FDI or infusion in a greenfield project,” says Basu.

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