New FDI norms may come as a boon for Bharti

INDIA'S largest mobile operator Bharti Airtel will benefit largely from the new foreign direct investment (FDI) guidelines notified in February if its revived merger talks with South Africa's MTN Group concludes successfully, in spite of the government's plans to take a fresh view on the latest FDI norms.
    The new FDI norms notified under Press Notes 2, 3 and 4 by the previous UPA government consider a company Indian if Indian promoters hold a majority stake in it and the investments made by such companies in any joint venture or downstream venture will be treated as Indian.
    Bharti Airtel, which had close to 70% foreign equity stake as per the old guidelines — where 'beneficial ownership' is interpreted to include indirect holding — has only close to 43% FDI under the new norms. This is because a significant part of SingTel's 31% holding in the company as well as Vodafone's entire are routed through majority-owned Indian companies. The proposed deal is compliant with the new norms and FDI in Bharti Airtel will remain within the sectoral cap of 74%, a Bharti spokesman said.
    This assumes that 'beneficial ownership' is interpreted to exclude indirect holding — foreign beneficial ownership has to be less than 50% for a company to be treated as Indianowned under the new FDI norms. And if 'beneficial ownership' is interpreted to include indirect holdings, Bharti may already lack any headroom for further foreign holdings.
    A finance ministry official confirmed that Bharti Airtel's proposed deal is unlikely to face opposition and the company could bring in additional foreign equity under the new norms as long as it is within the sectoral cap. A senior government official, who did not wish to be named, told ET that the newly-formed Cabinet will take up the FDI policy for a fresh look, given the objections raised both by the finance ministry and the Reserve Bank of India (RBI).
    This, however, does not necessarily mean that the whole FDI policy will be overhauled. In all likelihood, the Cabinet may decide to tweak a few clauses and issue clarifications to address the concerns raised by the finance ministry and RBI, another government official said.
    soma.banerjee@timesgroup.com 

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