Revoked Indian Telecom Licenses Spur Legal Action

The Indian Supreme Court’s decision to revoke 122 licenses granted to eight telecommunications companies as part of a $40 billion scam allegedly perpetrated by the country’s former telecom minister is spurring a wave of legal and managerial reactions.

The cancellation of the licenses was a blow to the Indian government’s credibility. But the man who granted the licenses — former telecom minister Andimuthu Raja — is in jail facing charges of corruption. To challenge the court decision would be interpreted by the public as supporting the corrupt, which is politically unacceptable. A targeted reaction is more likely. Telecom secretary R. Chandrashekhar told journalists at an apex chamber meeting on February 29 that a decision would be taken in a couple of days. “We are not looking at challenging the cancellation of the licenses per se,” he said.

The companies affected by the license cancellations have already swung into action, however. On February 29, Tata Teleservices, which has had three of its licenses cancelled, moved the court. Idea Cellular, a Kumar Mangalam Birla company that had 13 of its licenses cancelled, had gone to court a few days earlier, seeking a clarification.

But the acrimonious action is really coming from the foreign companies that set up joint ventures with Indian firms that had obtained the licenses. Telenor of Norway, which had partnered with realty company Unitech for its telecom foray, has dumped its Indian partner. The Norwegian firm has approached the Company Law Board to prevent Unitech from obstructing its bid to form a new company. It has also sought unspecified damages from Unitech. The Norwegian company plans to bid for licenses through the new company. The Supreme Court has recommended that the 122 licenses revoked be auctioned off. This time, foreign companies may be allowed to bid on their own. The joint venture — Uninor — had 22 licenses.

Russian conglomerate Sistema, which had partnered with Shyam Teleservices to set up Shyam Sistema, has said that it will take the government of India to the arbitration table. The company says that the government failed to issue “proper licenses.” Sistema has evoked the provisions of the bilateral investment treaty between Russia and India.

Etisalat of the United Arab Emirates has started legal proceedings against the promoters of Swan Telecom, with whom it had joined hands to set up Etisalat DB. (The DB part of the name comes from DB Realty, a company belonging to the same owners as Swan.) The charges made by Etisalat are “fraud and misrepresentation.” According to an Etisalat statement: “Etisalat is facing very significant financial losses on its investment despite having no involvement in the 2G license application or award process…. As a leading international telecom company with a high reputation for integrity and ethical behavior, [Etisalat] has taken this action to protect its interests and those of its shareholders.”

Elsewhere, Anil Ambani’s Reliance Infratel has taken Etisalat DB and STel to the telecom regulator — the Telecom Disputes Settlement & Appellate Tribunal — for the recovery of dues. STel, which lost six licenses, has apparently decided to exit the Indian market. S. Sivasankaran, chairman of the Siva Group and a major investor in STel, has written to the Prime Minister asking that the $350 million paid as license fees be returned. Another investor in STel — Bahrain Telecom — has already sold its stake. Etisalat has meanwhile announced that it will pull out; it has written off most of its investment.

So could this telecom tangle provoke a more general pullout and a slowdown in foreign direct investment (FDI) in India? “There is likely to be a short-term ebb due to caution on the part of foreign investors, greater due diligence on local partners and more legal protection in contracts that will be time consuming,” says Bundeep Singh Rangar, CEO of IndusView, a cross-border M&A consultancy. “In the mid-to-long term, however, there will be an increase in FDI as the Supreme Court ruling signifies a cleaning up exercise that will lead to greater accountability and transparency for FDI and related processes such as auctions and applications for licenses and investments. That will give greater comfort to foreign investors about the soundness and protection of their investments in India.”

http://knowledgetoday.wharton.upenn.edu/2012/03/revoked-indian-telecom-licenses-spur-legal-action/

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Republic Day – India, January 26 2012

Today, January 26, marks Republic Day in India, an annual event commemorating when the Constitution of India came into place on January 26, 1950. 

Various celebrations are held throughout the country, with the largest taking place at the capitol (New Delhi). The highlight of the celebration is a parade that is held in New Delhi at the Rajpath with military members dressed in their finest attire, a favorite of everyone in attendance and watching on television from afar. 

There is also always a state guest invited each year; this year it is Prime Minister Yingluck Shinawatra of Thailand. The President starts the ceremonies with a symbolic gesture by laying a headdress at the Indian Gate in memory of all Indian military members who have given up their lives for their country. 

Following the grand parade are tributes to each state which portray the vast diversity of cultures through various displays such as poems, songs, and dance. The ceremonies are ended with the Beating Retreat, played by the Indian Army, Navy, and Air Force; a moving way to end such an important day. 

Being one of the three national holidays in India, it is a favorite among all; Republic Day ignites strong patriotic feelings among everyone towards their country allowing each person to feel they are a part of something bigger than just themselves. 

Enjoy your Republic Day celebrations…Happy India Republic Day 2012!

Vodafone Indian Supreme Court Win A Positive Sign for Foreign Investments in India

IndusView, 20 January 2012 (London) – The decision by India’s Supreme Court in favor of Vodafone Group Plc, the world’s biggest mobile phone company, is a positive signal to foreign investors worried about tax and investment policies in the world’s second fastest growing major economy.

“This was a litmus test won by foreign investors against an attempt by the Indian taxman to extend its jurisdictional reach,” said Bundeep Singh Rangar, Chairman of IndusView, an India-focused advisory firm. “It provides tax certainty to foreign investors as the verdict is a clear statement that deals done outside India that involve Indian assets, are not taxable in India.”

With a recent decline in Indian stock valuations, drop in the Indian rupee currency and the opening up of sectors such as India’s retail market, Indian companies are likely to become attractive targets for foreign acquirers this year. They were cautious and even nervous, however, given the unknown tax implication of Vodafone’s 2007 $11 billion acquisition of Hutchison Essar Ltd, India's second largest GSM mobile service. The court decision today ends uncertainty in a manner that’ll be welcome news by foreign companies seeking to invest in India.

In 2011, seven of the 10 multi-billion dollar deals were inbound ones, i.e. foreign companies buying Indian ones. Multi-billion dollar deals included Vedanta Plc’s acquisition of Cairn India assets that was also mired in a 15-month long regulatory quagmire and BP Plc’s acquisition of Reliance’s energy assets. That’s likely to increase now that uncertainty is removed and could see a reversal of the 20% decline in deals in 2011. The value of merger and acquisitions and private equity investments in India totaled $54 billion in 2011 compared with $62 billion in 2010.

The Indian tax department sought 112.2 billion rupees ($2.2 billion) in capital gains tax on Vodafone International Holdings BV’s purchase of Hutchison’s mobile operations in India. While Hutchison profited from the sale, the tax department pursued Vodafone, saying the company should have withheld the tax from its payment to Hutchison.

Vodafone took its fight all the way to India’s Supreme Court to protest the potential $2.2 billion tax bill on the grounds that the deal was between two overseas companies, tax was applied retrospectively and capital gains tax is paid by the acquired company, not the buyer. If Vodafone’s appeal were unsuccessful, it could have seen its charge double to $5bn due to a penalty for non-payment of tax. It is now also entitled to a refund of $550 million deposit with the Indian tax authorities.

With a subscriber base of more than 851 million, the Indian mobile phone market in India has grown to become the second largest in the world after China after it was opened to private companies in the 1990s. Vodafone has the third largest subscriber base in India following market leader Bharti Airtel and Reliance Communications.

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