The government has proposed strong safeguards for Indian promoters as a pre-condition for upping the foreign direct investment ceiling on telecom services from 49 per cent to 74 per cent.
Indian promoters in telecom companies (where FDI has gone above 49 per cent) going in for an initial public offering or preference allotment must hold a minimum of 26 per cent of the post issue capital of the company. Shares issued through the IPO to financial institutions shall, however, not be counted as equity held by the promoters.
Such companies shall also start divesting their foreign equity within a period of seven years to be computed from the date of enhancement of FDI beyond 49 per cent.
The new proposal also gives the government sweeping powers by notification to restrict any service in the telecom sector to a foreign holding of less than 74 per cent, if they see a need to do so later on.
The draft note prepared by the government also stipulates that companies desiring to increase the FDI beyond 49 per cent will have to incorporate in their articles of association that a minimum of 26 per cent of the paid up capital of the licence company shall always be held by resident Indians or registered Indian companies.
In the latter case, foreign equity in such companies (including their holding companies) must not be more than 49 per cent and the management control will rest with the Indian shareholders.