Maxis won't give Saudi Tele free ticket

NEW DELHI: Saudi Telecom's purchase of 25% equity stake in Malaysian telecom company Maxis for $3 billion may not give it automatic access to India through Aircel Cellular, which is 74% owned by Maxis Communications. Saudi Telecom may need to obtain clearance from the Foreign Investment Promotion Board (FIPB) before it can get a corresponding stake in Aircel Cellular.

Under the revised provisions of the foreign direct investment (FDI) policy for critical infrastructure sectors, which include telecom, which is currently being finalised, if a global M&A results in a change of control, management or broad representation in an Indian telecom company, fresh clearance from the FIPB will be necessary.

Additionally, the new FDI policy also proposes that such a deal would require a separate security clearance from the Indian government. The security agencies have said that this rule should apply to 'critical infrastructure sectors' such as telecom.

This issue was widely debated when the government recently considered M&A issues related to Hutchison-Essar Ltd (HEL). The Prime Minister's Office had called for a review of FDI guidelines in all key sectors after the National Security Adviser (NSA) objected to Egyptian service provider Orascom’s bid to obtain an indirect holding in Hutchison-Essar (HEL) through purchase of an equity stake in Hutchison International. The objections raised by the NSA also thwarted Orascom’s attempts to get a board representation in HEL (now Vodafone-Essar).

Mandatory need for FIPB clearance in the case of global M&A deals affecting Indian telecom companies was proposed by the security agencies during the discussions related to HEL. The FIPB, while clearing Vodafone’s acquisition of a 52% stake in HEL, asked the government to rework FDI guidelines to plug the loopholes.

Clear norms for this are expected when the government carries out its proposed review of the FDI policy next month.
Maxis is privately-owned by Malaysian tycoon Ananda Krishnan’s firm Binariang.

Saudi Telecom, which recently said that it aimed to get 10% its revenues from external sources by 2010, has already chalked out big plans for India -- the world’s fastest growing telecom market.

“Saudi Telecom and Binariang's other shareholder will together underwrite a $900-million loan to expand in India where Maxis operates through its Aircel unit,” Saudi Telecom chairman Mohammed al-Jasser was quoted as saying in a statement carried by international wire agencies. "This transaction represents an important step for the company's drive to become an influential player in the global telecom sector," said the statement.

Similarly, Binariang chairman Raja Arshad Raja Uda in a statement said: "This partnership with Saudi Telecom provides the opportunity to link Maxis, and its operations in Malaysia, India and Indonesia, to one of the largest and most reputable telecommunications operators in the Middle East in a mutually beneficial way."

Saudi Telecom's investment in Maxis will boost the Malaysian company's plans for India. Aircel, India's fifth largest GSM player, stands to gain as Saudi Telecom will infuse the much-needed capital to fund the expansion plans. More so, considering that Maxis had recently said that it would need an additional $3 billion to expand operations in India.

Aircel, with just under 5 million subscribers, holds licences to offer telecom services in nine telecom circles in the country and aims to be a pan-Indian player and expand its presence to all 23 circles by the first half of 2009. As the first step, the company recently launched services in both Himachal Pradesh and Bihar. Aircel was recently been granted both the national and international long-distance licences by the department of telecom (DOT).

Maxis Communications' group chief executive officer Datuk Jamaludin Ibrahim had recently told ET that the company would invest over Rs 2,000 crore in its Indian operations in 2007-08, while adding that it had set a target of reaching 8 million subscribers during this period. In the last fiscal, Maxis had invested about Rs 2,700 crore in Aircel, of which Rs 1,350 crore was paid to the department of telecom (DoT) towards entry fee for licences in 14 new circles in the country, while the remaining was spent on network expansion.