Glad tidings

New Delhi, July 14: The Foreign Investment Promotion Board (FIPB) today gave its nod to a 68 per cent foreign shareholding in Hutchison Essar, including the 10 per cent indirect stake held by Egyptian telecom operator Orascom.

The Orascom proposal was earlier cleared by the department of telecommunications on the grounds that transfer of shares took place outside India and that does not breach the overall 74 per cent FDI ceiling in telecom.

The FIPB also approved the Orascom stake in Hutchison Essar on similar grounds.

The FIPB clearance came after Hutchison approached the board as FDI in the joint venture company had crossed 49 per cent.

Current guidelines stipulate that FDI between 49 and 74 per cent in a telecom venture needs to be cleared by the FIPB.

The cellular joint venture has Indian partner Ruias controlling 33 per cent. The FIPB clearance comes in the midst of a debate on the issue of an indirect equity shareholding of Orascom.

Last December, Orascom Telecom of Egypt picked up a 19.3 per cent in Hutchison Telecommunications International (HTIL) for $1.3 billion and, thereby, acquired an indirect stake of a little over 10 per cent in Hutchison Essar. The deal also gave Orascom the option of raising its stake in HTIL by another 3.69 per cent and, therefore, its stake in the Indian telecom giant.

The Ruias were hugely upset with the sale of the indirect stake in Hutchison Essar to Orascom which not only gave the Egyptian company a 10 per cent stake but also entitled it to a board seat.

The brouhaha that followed raised security concerns over Orascom’s sneak entry into India since it held the controlling stake in a leading telecom company in Pakistan ? Pakistan Mobile Communications Ltd (Mobilink).

National security adviser M.K. Narayanan too had written a letter to the department of telecommunications saying Orascom’s acquisition of 19.3 per cent equity in HTIL was a threat to national security as Orascom is a dominant mobile operator in Pakistan and Bangladesh.

An official said the National Security Council was working out detailed norms according to which investment from undesirable quarters would be prohibited. The council is the sole deciding authority in security issues relating to FDI.

Since the overall 74 per cent FDI ceiling in telecom is not being breached, the department of economic affairs (under the finance ministry) too gave its in-principle approval to the Orascom stake.

Hutchison, the foreign partner in the JV, through its June 30 acquisition of 5.1 per cent of the Hindujas’ stake, has consolidated its holding in the company to about 67 per cent. Today’s approval could further strengthen Hutchison’s position in the JV.

The FIPB has also cleared Hutchison Telecommunication (India)’s acquisition of the 5.11 per cent Hinduja TMTstake in Hutchison Essar for $450 million.