Sistema Shyam's proposal to raise foreign holding hits roadblock

DoT has stated that the redeemable preference shares will be deemed as debt and must conform to ECB guidelines

The proposal of Sistema Shyam Teleservices, which operates under the MTS brand in India, to increase foreign shareholding beyond 74 per cent by way of converting 7.8 million redeemable preference shares has hit a roadblock.

The Department of Telecommunications (DoT), in a recent communication, stated that the redeemable preference shares would be considered as debt and shall require conforming to the guidelines of External Commercial Borrowings (ECB) as redeemable preference shares, currently issued or being issued, and redemption of such shares are eligible capital instruments under the current foreign direct investment (FDI) policy.

Earlier, the Foreign Investment Promotion Board (FIPB) has asked the DoT to look into the matter following the proposal of Sistema Shyam Teleservices, stating that as there will not be any change in FDI in the company, the matter would not come under the jurisdiction of FIPB.

Following this, DoT had asked for details of number of shares to be converted, and the shareholding details of the company. The redeemable preference shares are currently held by Insitel Services issued in 2012.

Currently, Sistema JSFC holds 56.68 per cent in Sistema Shyam Teleservices, Russian government 17.14 per cent and 0.13 per cent other foreign entities.

Sistema Shyam Teleservices is the second cellular operator after Vodafone that has approached FIPB for raising FDI limit after the Government decided to permit 100 per cent FDI in telecommunications in July, 2013.

In April, British major Vodafone Plc acquired 100 per cent stake in Vodafone India in a phased manner by acquiring shares held by its non-executive Chairman Analjit Singh and his wife and a 10.97 per cent stake held by Piramal Enterprises, with total investment of Rs 10,142 crore.