Tuesday, May 08, 2007

If you can't score, try shifting the goal post

Steve Pavlina says the best way to “win” an argument is to go for an entirely different goal than trying to prove the other wrong.

This also seems to be the strategy of Rajeev Chandrasekhar, [currently VC with Bangalore based Jupiter Capital as well as a Rajya Sabha M.P] who seem to be fairly upset about the recent stamp of approval given by FIPB to Vodafone-HutchEssar deal. Rajeev was previously the majority shareholder and head of BPL Mobile before it was sold to Essar Teleholdings in a deal valued over $1 billion. He is outraged since the Foreign Direct Investment (FDI) policy of the Government stipulates a maximum 74% ceiling for FDI in Indian Telecom sector, HutchEssar deal managed to slip through the policy net (by recognizing the 15% proxy holdings of two individuals as "resident holdings" - who were clearly surrogate stand ins for the foreign owners).

The background. In February, Vodafone had acquired Hutchison Telecommunications International Limited's (HTIL) 52 percent holding in the Indian company Hutchison-Essar, in which the Ruia-controlled Essar group is the junior partner with a 33 percent stake, 22 percent through a foreign holding firm. The remaining 15% is *ostensibly* held between Hutch CEO Asim Ghosh and Analjit Singh, MD of Max India, both reportedly Indian residents. Technically therefore the FDI sectoral caps have not been violated by HutchEssar by virtue of 26% stake is still held by Indian nationals (11% Essar, 15% Asim-Analjit joint holding). Smart move indeed.

Rajeev wants to know "is it the case of the government that where there is sectoral cap, any Indian citizen (or entity) standing proxy for foreign source of capital is enough to satisfy our requirement of being an Indian investor," in his letter questioning this model that is rampantly finding favor in the country.

"The question is not attempting to target any one company, but rather I am raising this issue as an issue of principle to start a debate about our country's approach towards foreign investment, the loopholes in our approach and the disrespect of the laws of our country by a few foreign investors. I have posed similar questions recently pertaining to foreign investment in Land on coastal areas," he groans.

Reasons for his carping are not hard to seek. BPL's Investment Bankers and Lawyers (hired by Rajeev for BPL-Essar deal) were not so ingenious in putting together a deal structure which technically could pass muster before FIPB and stay well within the FDI sectoral restrictions. Instead they just threw the rule book at him without much thought – the 74% sectoral caps for FDI investments in Indian Telecom sector had restricted his options and made him sell to another Indian Telco leaving no scope for fuelling a bidding frenzy as happened in Vodafone-HutchEssar deal. While HTIL, by smartly categorizing the 15% holding as stake held by residents, managed to pull it off at a stratospheric valuation of $11.1 billion for the 52% stake in HutchEssar. By this yardstick ($852 per subscriber), BPL divestment should have yielded much, much more than what Rajeev got from Essar. It’s an open secret that both Asim Ghosh and Analjit Singh stood proxy for HTIL, the holding company of Hutch and have several restrictions which forbids them from divesting it on their own to any other third party.

Now you know why I felt Rajeev is going for a different goal (newfound patriotism which urges him to raise the issue of disrespect for Indian laws and even threat to national security since it's too late to wreck the deal) instead of trying to be right !
What do you think ?

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