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Star backs off as Tata Sky stake plan hits govt wall
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#1
New Delhi: Star India’s plan to increase its stake in DTH venture Tata Sky by floating a joint venture company with the Tata group has hit a dead end. Star has withdrawn its proposal hours before the last Foreign Investment Promotion Board (FIPB) meeting earlier this week.The withdrawal happened after Star learnt that the information and broadcasting (I&B) ministry, the nodal ministry concerned with the broadcasting sector, has not supported its proposal.

Sources said that the I&B ministry felt that Star India’s proposal of hiking its stake in Tata Sky would lead to a dilution of the Indian management control in the DTH company. “This was unacceptable to the I&B ministry,” an official said.

When contacted a top executive of Star India told FE: “Yes we have withdrawn our application to FIPB else it would have been rejected. We may apply again though after seeking legal opinion.”

Currently, Star has a 20% stake, the maximum permissible under the FDI norms for the sector, in the DTH venture, Tata Sky. Tata group has 70% while Singapore-based PE firm Temasek has 10%.

In its proposal sent to FIPB in January, Star had proposed to buy 49% stake in a Tata group company (TS Investment) that would be formed with the sole purpose of funding Tata Sky. TS Investment in turn was going to pick up 20% stake in Tata Sky for Rs 324 crore, which meant Star would have automatically picked up an additional 9.8% stake in Tata Sky by virtue of being a 49% partner in TS Investments.

Thus, Tata group’s stake would have reduced to 50% from the current 70%. This was based on the amended Press Note 2 and 4 of 2009, which allow downstream investments by foreign players if it is routed through an Indian-owned and managed firm. However, this would have led to a breach of the cross-holding restrictions and the 20% FDI cap in the DTH sector as Star already holds 20% stake in Tata Sky. According to the rules on cross-media restrictions, no broadcasting company can hold more than 20% in a DTH firm or vice-versa. Also, experts said this would have become a test case for other broadcasters as they would have sought similar approvals in other DTH companies circumventing the foreign investment norms. Sources said that the I&B ministry questioned the holding structure of the proposed joint venture company (Star—TS Investment) and the grant of equal voting rights to the directors of Star and Tata even though Star was to hold a minority stake in the proposed joint venture firm.

Sources said the I&B ministry also questioned the shareholders agreement of the applicant with that of Tata Sons, the Indian partner in Tata Sky. “The shareholders agreement between Star, TS Investment and Tata Sons do not seem to be in accordance with the company law provisions and therefore need to be dispensed with or should be brought in accordance with the provisions of company laws,” a source in FIPB said.

This move was significant for the financial health of Tata Sky as it is looking at raising more money to fund the fast-growing DTH business. Even though the DTH sector has been witnessing high double-digit growth recently, the subsidy on hardware (set-top boxes) and lower average revenue per user has contributed to Tata Sky generating losses estimated to be in excess of Rs 2,800 crore on its balance sheet.

Overall, industry estimates suggest the six-player DTH market might this fiscal post a combined loss in excess of Rs 6,000 crore on an overall revenue of around Rs 3,500 crore.

Source: The Financial Express

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The I&B ministries restrictions initiated Star to step back in raising stakes.
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Set Back for Tata Sky
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