Foreign telcos can buy out their Indian partners

The decision to allow 100 per cent FDI in telecom will offer foreign telcos such as British telecom giant Vodafone Group, Norway-based Telenor and Russia's Sistema the option to buy out their Indian partners. It will also enable Indian telcos that are sitting on a cumulative debt of about Rs 2.5 lakh crore -more than 50 per cent of which is foreign debt - to reduce exposure by bringing in cash and retiring debt through equity infusion. "Telenor Group has already expressed interest in raising its stake in the Indian operations to 74 per cent. We are fully committed as a long term investor in India," Telenor spokesperson said in a recent email to Business Standard.

While FDI up to 49 per cent can come via the automatic route, companies would have to get the approval of Foreign Investment Promotion Board (FIPB) for foreign investments beyond that level. At present, India permits up to 74 per cent FDI in the sector - 49 per cent through the automatic route and the rest after FIPB approval.

There may be further consolidation and buyouts in the telecom space, as cash-rich foreign telcos are likely to seek to buy out Indian partners' stakes, but new companies are unlikely to look at the market in the near future, said an analyst with a management consulting firm. "There might be a few small deals as telcos may look at reducing debt."

Vodafone, which had to scout for a new partner after the Ruias decided to sell out, had inked pact with Ajay Piramal. According to the agreement, Vodafone would have to buy back shares at a premium if an initial public offering did not materialise in two years. Vodafone did not respond to Business Standard's queries.

After the approval from a ministerial panel last month, Sistema Shyam TeleServices, which is 56.68 per cent owned by Russia's Sistema, had said: "The much-needed policy decision is a very positive development for the entire industry. With fresh foreign direct investments coming in, this would further catalyse growth and also the process of proliferation of telecom services across the country."

Aircel, which is 74 per cent owned by Malaysia's Maxis, has also said in a statement that the move will "undoubtedly have a huge benefit for our customers and (translate into) higher licence fees for the government".