No objection from RBI and DIPP to FDI increase in Idea Cellular

No objection from RBI and DIPP to FDI increase in Idea Cellular

The Reserve Bank of India and the department of industrial policy and promotion (DIPP) have not raised any objections to increase in foreign direct investment of Idea CellularNSE -0.88 %, taking its proposed merger with Vodafone India closer to realisation.

Once Idea gets clearance to increase FDI in itself from nodal agency department of telecommunications (DoT), the two companies will need to ask DoT to transfer Vodafone’s licence to Idea for final approval of the mega merger that would create India’s largest mobile phone operator by revenue and subscribers, officials said.

While RBI has not found any lapse on account of Foreign Exchange Management Act in the merger of downstream subsidiaries of Idea Cellular and Vodafone India, DIPP has asked DoT to get clarification and documentation on whether all upstream and downstream companies that hold shares in the Indian entities are FDI compliant. “We have to check whether all the upstream and downstream companies are FDI compliant, even if they're registered in other countries and may have even 1% share, and, did they get due FDI clearance, conforming to the policy at that time,” a senior DoT official said. “

Idea and Vodafone will have to produce that documentation, and once we have that, we will be able to clear it (the FDI approval),” the official said. Idea Cellular and Vodafone India, which expect the merger to close by June, did not comment on ET’s queries. DoT’s final clearance will be conditional on clearance of dues, officials said. Vodafone India had received clearance for taking FDI in the company to 100% in December 2013 from the then nodal body – Foreign Investment Promotion Board (FIPB) - and completed the process by April 2014 through which Vodafone Group Plc became 100% owner of its Indian unit.

In what is the first major case of FDI approval after the disbanding of the FIPB, DoT has been going through the approval process very cautiously, and had sent letters to the RBI, DIPP and the department of economic affairs (DEA), eliciting their views on Idea’s FDI increases application. DoT wanted RBI to look into if there was any case for compounding as mentioned by the now defunct FIPB in its approval to Vodafone India when it merged some downstream subsidiaries. A person familiar with the matter told ET that RBI has communicated to DoT that there is no FEMA violation, and hence no ground for compounding and that the department may examine the case at their own end. DEA has already responded to DoT, leaving the matter to the telecom department to decide, a senior government official said.

DIPP also put the ball in DoT's court last week when it sought the former's consent on inserting a condition. DIPP told DoT that “conditions such as adherence to tax laws, judicial or tribunal orders don't constitute additional conditionalities and did not require its consent”, a government official said. The proposed condition was: Idea Cellular has to give an undertaking that they will take on whatever dues are pending, as was mentioned by the National Company Law Tribunal (NCLT) when it gave its approval to the merger of the two entities. The final DoT approval will be subject to clearing of dues, especially the one-time spectrum charges (OTSC) worth nearly Rs 6,000 crore, officials said.

DoT may demand that Idea and Vodafone collectively pay up approximately `19,000 crore as dues relating to a combination of pending licence fees, spectrum usage charges and OTSC. While all issues on spectrum usage charges and license fee would remain as are, since both are related to the computation of adjusted gross revenue, which is sub-judice, DoT could insist on bank guarantees for OTSC dues, in line with present telecom merger and acquisition rules.

The  Economic Times, New Delhi, 08th May 2018