Lock-in condition may create problem in telecom M&A: AG

The lock-in condition that telcos require abiding if they buy spectrum from auction, may create “problem” in possible mergers, the Attorney General (AG) has communicated to the Department of Telecommunications (DoT).

The DoT had earlier sought AG’s opinion on some aspects of the proposed final guidelines of mergers and acquisitions (M&A) for the telecom industry.

The much-awaited M&A guidelines are expected to be notified within the next few days, but with AG’s opinion, the Government may consider tweaking the norms.

The lock-in condition bars telecom companies from transferring equities within three years after buying spectrum from auction.

While the Empowered Group of Ministers (EGoM) on telecom, headed by finance minister P Chidambaram, had cleared the final M&A guidelines for telecom sector in December 2013, the notification is yet to come as the matter related to lock-in required legal vetting.

According to AG’s communication, the company which would be transferring assets would technically cease to exist after the merger or amalgamation. If the Government considers this as breach of the licence conditions as mentioned in the notice inviting applications (NIA). This could, the AG opined, deter people from participating in the auction.

AG further suggested that the M&A guidelines should clarify that if a licencee participates in an auction and is subject to lock-in condition, then if such a licencee proposes to merge into another company, or shares, the lock-in conditions would apply for the resultant company (the merged entity) as well.