FIPB clears ISP deal by former RCom executives

The Foreign Investment Promotion Board has cleared a proposal by internet service provider  Tikona Digital Networks-promoted by two ex employees of Reliance Communications- in which Goldman Sachs Investment Partners, Indivision India Partners, Oak India Investments and Green Lotus are going to invest Rs 237.3 crore. The investment will take their combined stake in the company to 69.9%.

The company has been promoted by former RCom employees Prakash Bajpai and Rajesh Tiwari  and will provide broadband and internet application services to enterprises, government institutions and households. It is a category A ISP, which makes it a pan-India service provider. While Bajpai was the president and CEO at Reliance Communications before founding Tikona, Tiwari was Group Director at Reliance-ADAG.

In a bid to raise funds for expansion, Tikona will  issue 38.86 lakh compulsorily convertible debentures (CCDs) and 34,560 equity shares to the Indian and international institutional investors. The four institutional investors already hold a 0.03% stake in the Mumbai-based firm. The Tikona promoters hold a 0.38% stake each, while the Tikona Trust holds 99.2%. Apart from their stake, GS Investment Partners, Indivision, Oak India Investments and Green Lotus also hold some CCDs and a small number of equity shares currently. Upon conversion of these, their stake would go up to 48.99%. The firm will issue additional CCDs and shares not only to the PE firms, but also to the promoters. While the institutional investors’ stake will go up to 69.9%, the promoters will hold 2.04% each.

GS Investment Partners, which invests in both public and private companies is growing Asian countries, and Green Lotus, which has the mandate to invest in privately-held companies in India, are both owned by investment firm Goldman Sachs. Oak India Investments is owned by Oak Investment Partners, a multi-stage venture capital firm with $8.4 billion in committed capital and having a primary focus on investments in sectors such as information technology (IT), internet infrastructure (broadband) and IT-enabled services. Indivision India Partners is a $425 million Mauritius-based private equity fund owned by Kishore Biyani’s Future Group.

As per Indian regulations, FDI in the telecom sector is allowed up to 74%. As such, the investment in Tikona is well under the norms. India had 5.65 million broadband users at the end of January this year. There are also plans to allow unrestricted internet telephony in the country, allowing users to make phone calls from their computers at very low prices.
Broadband services in India are provided by major telecom players Reliance and Airtel and also state run players like BSNL and MTNL. Then there are also independent providers like Sify and Spectranet in the market.

There have been several  deals in the internet service provider (ISP) space. UK fund Ashmore Investments is picking  up a  74% stake in Mumbai-based Broadband Pacenet. Citi Venture Capital International also has a stake of more than 80% in You Telecom, a broadband internet service provider.