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BUSINESS
Paper
Money
The Mumbai
eveninger's IPO brings into focus the confusion over foreign investment
in the print media
By
V.Shankar Aiyar
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| PRESSING
AHEAD: Mid-Day's Ansari (Second from left) gets foreign money, not
foreign control |
A
public issue of Rs 50 crore is hardly the stuff that makes headlines.
Not even in the comatose state that the primary market is in. But such
was the outrage in a section of the media that last week mandarins in
the Finance Ministry, the Information and Broadcasting Ministry, Reserve
Bank of India (RBI) and the Securities and Exchange Board of India (SEBI)
spent considerable time fielding queries on Mumbai eveninger Mid-Day's
initial public offering (IPO-a public issue of shares) that opened on
February 12. Thanks to a letter from Shiv Sena MP Sanjay Nirupam. Nirupam
is furious: "This is a case of infiltration by foreigners and will
eventually lead to the Murdochs of the world deciding who will rule us."
The crux
of the matter is that Mid-Day Multimedia Ltd asked for, and has been permitted
to, invite takers for a portion of the public issue from foreign institutional
investors (FIIs). RBI and SEBI officials point out the clearance (issued
on November 6, 2000 by RBI and on January 8, 2001 by SEBI) is legitimate.
Tarique Ansari, managing director, Mid-Day, wonders what the issue is
all about. "We are well within the law," he says. But to xenophobic
sections of the media this was tantamount to a backdoor entry for foreigners
into the print media.
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THE
FEAR ...
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| Permitting
foreign equity stake in Indian print media companies will eventually
lead to foreign control over them. |
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...
THE REALITIES
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Foreign
media houses have not been allowed to buy stakes in Indian media.
Only foreign portfolio investment has been greenlighted.
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| Foreign
institutional investors are not interested in controlling Indian media
companies. Their primary concern is shareholder value. |
Theoretically,
Mid-Day could have floated the issue in September 1992 and got the clearance.
Neither the guidelines for FIIs issued by the Finance Ministry on September
14, 1992 (transcribed in the SEBI Act, 1995) nor the erstwhile Foreign
Exchange Regulation Act (re-enacted as the Foreign Exchange Management
Act in 2000) prevents investment. According to SEBI, registered FIIs are
categorically allowed "to invest in all the securities traded on
the primary and secondary markets" up to 24 per cent or 40 per cent
if authorised by the investee company's board.
Sure, FEMA
does have a negative list but that deals with foreign direct investment
(FDI). Again it is only a constraint in the sense FDI in print media is
not allowed to use automatic approvals route. However, there is no bar
on portfolio investment. But it is this inconsistency that riles Nirupam.
His poser: "Can there be two rules/laws on the same subject? Either
the 1955 cabinet resolution holds or FEMA does."
Neither
SEBI nor RBI believe it is a point of debate. Their view: only foreign
portfolio investment, not entry for media houses, has been allowed. So
what is the hullabaloo about? The fig leaf is the FIIs' voting rights.
True, but FIIs can't hold more than 10 per cent of a company's equity
and all FIIs together can't hold over 24 per cent. Hence the risk of a
management change is nil. Besides as U.R. Bhat, chief investment officer,
Jardine Fleming Asset Management, points out, "FIIs have a constituency
to defend-their investors. They are here to invest on performance and
fundamentals for a return, not to manage companies."
Indeed,
Falgun Patel, editor and managing director, Sandesh-listed in 1997 through
a Rs 20-crore IPO-reveals he had no problem with FIIs who invested in
the secondary market. "So why cry wolf?" asks Patel. "In
India, issues are raked up not on logic but on the whims of vested interests."
Interestingly, officials of SEBI and RBI point out that there is a 21-day
period for objections but none came forward till two days before the issue
opened.
The controversy
thus is symptomatic of the confusion that dictates policy. With nearly
40 per cent illiteracy, any government ostensibly worried about foreign
influence would have blocked investment in television. But that is open
to foreigners. So is the Internet and other emerging convergence media.
As Vimal Bhandari, executive director, IL&Fs (lead manager), points
out, "Access to capital is being denied to print while it's allowed
to competing media, including television and the Internet." In its
attempt to protect the print media, the policy is killing it-financially.
Strangely, the xenophobic section of the media is not too worried about
it. Perhaps that is their strategy.
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