Walt Disney stake hike proposal in UTVi tests new FDI guidelines

In a move that could test the government’s new Foreign Direct Investment (FDI) guidelines, UTV Software Communications, in which Walt Disney Company holds a majority stake, is planning to increase its shareholding from 20 to 49 per cent in a Special Purpose Vehicle (SPV) that owns and controls the business news channel UTVi.

Walt Disney currently holds 59.9 per cent in publicly-listed UTV Software Communications, in which Ronnie Screwvala holds 23 per and the rest lies with the public (see chart).

UTV Software Communications, in turn, holds 20 per cent in an SPV that owns UTVi. Screwvala and associates hold the rest. Because of Walt Disney’s majority holding in UTV Software Communications, the company is considered a foreign company under the pre-2009 FDI guidelines, so the SPV will be considered a foreign-owned company (Walt Disney’s pro-rata stake in the SPV is 12 per cent).

Under the new guidelines on calculating direct and indirect FDI, under Press Notes 2, 3 and 4 that the government issued in February this year, this SPV will no longer be considered owned by a foreign company as long as Indian citizens or companies own a majority stake in it.

If UTV Software Communications’ stake in the SPV is raised to 49 per cent, Screwvala’s stake will drop to 51 per cent, which still constitutes a majority.

However, the proposal, which was made at a UTV board meeting on Friday, would effectively mean that, on a pro-rata basis, Walt Disney’s stake in the SPV would go up to 29 per cent. Under Press Note 1, 2006, only 26 per cent FDI is permitted in news and current affairs channels, with prior government approval.

A final decision on this proposal depends on the valuation of UTVi. The UTV Software Communications board has decided that an independent valuation will be submitted to the board within four weeks. In a notification to the stock exchange, it said it would “prepare and proceed for applications for regulatory approval, which would be subject to the valuation report submitted and its acceptance by the board”.

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Feb 12: Govt okays major easing of FDI norms