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TRAI Recommends 3 Year Lock-In For Promoter's Stake In New Licensees

14 March, 2009

Telecom Regulatory Authority of India, on Thursday released the recommendations on the ‘lock in period for promoter’s equity and other conditions for the Unified Access Service Licensees (UASL). The regulator has proposed that there should be a lock in of the equity share of promoters whose net-worth has been taken into consideration for determining the eligibility for grant of UAS license, for a period of three years from the effective date of license.

The lock in will also apply to new licences that Vodafone Essar, Idea Cellular and Aircel were given last year. These telecom operators were given additional licences for new circles last year, which helped them become pan India operators.

The regulator has also said that the promoters who wish to sell their equity before the lock-in period may be allowed to do so if they agree to give 50% of the profit earned on the sale of such shares to the government. The remaining 50% profit should be retained in the business as a special reserve and utilized for telecom network expansion only.

The profit on sale of such shares shall be defined as the difference between sale value of equity shares on the date on which the transfer of such shares takes place and their face value on the date of application for UAS licence.

The regulator has also said that the lock-ins would not apply if the telecom companies issue fresh share capital to investors and foreign telecom companies. This also means that the lock-ins will not affect the deals in which the telecom companies have already entered into such as swan and Unitech. While Swan had offloaded 45% stake to UAE’s Etisalat for $900 million, Unitech had divested up to 60% stake in its telecom venture to Norway’s Telenor for $1.1 billion. However, these firms say that they hadn’t offloaded stakes, rather had issued fresh equity to the foreign partners.

It has also said that in addition to the present reporting system, any change or dilution in the stake of promoters’ share in the total equity share capital of the licensee company should be informed by the Board of Directors to the Licensor (DoT) within 2 days of such change taking place. A certificate from the company secretary or the statutory auditor also needs to be filed within 15 days of transaction.

TRAI also said that if the promoters pledge their shares with banks for raising debt, they will not be allowed to transfer the equity during the three-year lock-in period, in case of default in payments.

The Department of Telecom had also sought TRAI’s recommendations on preventing the wind fall gains made by ‘fly-by-night operators.’ The issue had come up after new telecom players were seen making wind fall gains at the cost of the national exchequer. The Government’s decision to give out fresh telecom licences on ‘first come first served’ basis has resulted in windfall gains to some Indian promoters of new telecom companies.

TRAI has also said that the Department of Telecom in consultation with the finance and law ministries should work a scheme for imposing  a 3 year lock in on sale transactions that have already taken place.


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TRAI Recommends 3 Year Lock-In For Promoter's Stake In New Licensees

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