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Breach of holding norm may hit Star's plan on Tata Sky
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#1
New Delhi: Breach of cross media holding restrictions, leading to a violation of the DTH licensing norms of Tata Sky, may jeopardise Star India’s move of increasing its stake in Tata Sky. Star India’s application has already been deferred by the Foreign Investment Promotion Board (FIPB) at the behest of the information and broadcasting (I&B) ministry.

Government sources say the I&B ministry is closely scrutinising Star’s application on several accounts including cross media holding restrictions.

In its proposal sent to FIPB in January, Star has proposed to buy 49% in a Tata group company (TS Investments) that is being formed with the sole purpose of funding Tata Sky. TS Investments in turn will pick up 20% in Tata Sky for Rs 324 crore. A 49% stake of Star in TS Investments will mean Star India will hold 9.8% in Tata Sky post government approvals. However, this move will take Star’s overall holding in Tata Sky to around 30% (from current 20%) whereas according to the current cross-holding norms, no broadcaster can hold more than 20% in a DTH firm.

“No DTH licence holder will allow broadcasting companies or cable firms to collectively hold or own more than 20% of the total paid-up equity in its company at any time during the 10-year licence period,” say the DTH licensing conditions formulated by the I&B ministry. Any breach of DTH licensing norms can lead to suspension or cancellation.

So far, the I&B ministry was studying the Star’s proposal for any possible change in ownership and control of the proposed entity —TS Investments —in favour of Star India that otherwise will be a minority shareholder.

“There is merit in looking at the cross media holding restrictions in this case. All angles will be explored,” a government source said on condition of anonymity.

The proposal from Star India highlights the press note 2 and 4 of 2009 as the basis of forming a joint venture entity (with TS Investments) which will be used to fund the group’s future investments. According to press note 2 and 4 (2009 series), any investment made by Indian owned and controlled firms in other entities will not be counted as foreign investments. Currently, the Tata group owns 70% in Tata Sky while 20% is with Star group and the remaining is being held by Singapore-based Temasek.

“Star's interest in increasing stake in Tata Sky is of interest to other media firms in the DTH space and otherwise,” an expert said.

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Investment regulation is needed for the interest of shareholders.
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