NDTV promoters' dream gift for daughter encounters road-blocks

By Naresh Minocha, Our Consulting Editor

THE Government has virtually checkmated the pending proposal by Dr and Mrs Radhika Roy, the promoters of New Television Ltd (NDTV) to gift their 14.99% stake in the company to their non-resident Indian (NRI) daughter Ms Tara Roy.

Even as NDTV is yet to clarify issues raised by Ministry of Information & Broadcasting (MIB), Reserve Bank of (RBI) has notified revised procedure on gifting of securities including shares to NRIs.

According to a business analyst tracking NDTV scrip, RBI’s circular dated 25th August 2005 would serve as big boulder in the way of Roys’ mega-gift initiative.

The factors that RBI would keep in view while considering gift applications include: the gift does not exceed 5% of the paid-up capital of Indian company, the applicable cap on foreign direct investment (FDI) in the company is not breached by gifting of shares, the value of shares to be gifted should not exceed the rupee equivalent of $ 25,000 in a calendar year and the donor and donee are close relatives as defined in Section 6 of the Companies Act.

He said that the last condition effectively rules out share transfer in this case as an adopted child does not figure in the definition of close relatives. The Companies Act does not factor into the fact that a couple may be very much emotionally attached to an adopted child.

And a close associate of Dr. Roy confirmed that Tara is adopted daughter of Roy couple.

The other factors mentioned in RBI circular would also not permit Roys to transfer 14.99% stake at one go.

If the Companies Act is amended, the other factors listed in RBI circular would force Roys to restrict share transfer at the rate of $ 25,000/year. At this rate, it would take several years to gift the shares to Ms Tara Roy.

The 14.99% comprises 9120386 shares of face value of Rs 4. The latest value of these shares is Rs 221.39 crore on the basis of average price of Rs 242.75/share on the Bombay Stock Exchange (BSE) on September 2.

NDTV script has caught the fancy of bulls and speculators ever since the share transfer proposal reached the stock markets. The share price was Rs 187.10 when the Roys filed the application with Foreign Investment Promotion Board (FIPB) in May 2005.

Both Dr. Roy and Mrs Roy have proposed to gift 4560198 shares each totaling 9120386 shares. Both currently hold 27.39% stake each in the company aggregating to 54.78%.

MIB had asked in June whether gift of shares by a resident Indian to a non-resident Indian (NRI) remain an Indian investment or becomes FDI.

Neither the Department of Economic Affairs (DEA) nor NDTV could answer this query when FIPB considered on 9th June Roy couple’s proposal. The proposal has since been discussed twice by FIPB.

According to sources associated with NDTV proposal, MIB has certain reservations over the Indian promoters’ equity stake falling below the stipulated 51% under the guidelines for uplinking news and current affairs TV channels. The Ministry had indicated this in a letter dated 27 May 2005 to FIPB Secretariat.

The Roy couple’s combined stake would decline from 54.78% to 39.79% after the transfer of shares to their daughter. And Ms Tara Roy’s stake would increase from miniscule level of 13 shares to 15%. Tara acquired 13 shares when she was resident Indian and also served as director of NDTV.

The Department of Economic Affairs had recommended approval of the application with the standard stipulation that the gift of shares is up to a maximum of 5% equity or Rs 10 lakh, whichever is lower.

The share gifting rules were issued by Reserve Bank of India (RBI) under Foreign Exchange Management Act (FEMA) in 2000. But the guidelines

Page 1 of 2 specifying ceiling for gift of shares were laid down sometime in 2003.

The existing FDI cap is 26% equity for media companies engaged in uplinking of news and current affairs television channels from India. At present 3.05% of NTDV stake is held by foreign institutional investors under pre-IPO arrangement.

This foreign equity is now set to rise to 11% with FIPB approving on 26th August Shyam Cellular Infrastructure Projects Limited (SCIPL) to sell its entire stake in NDTV to GA European Investments Limited of Cyprus. SCIPL is a resident shareholder and is a member of Delhi-based Shyam telecom group.

FIPB approval for SCIPL is subject to final Government clearance by the Finance Minister. This is considered a formality by sources associated with the proposal.

SCIPL intends to sell 48,36,600 shares (constituting 7.954% of NDTV’s paid-up capital) to GA European at a price of Rs 116.06 crore.

Soures said that FIPB brushed aside NDTV’s request to defer decision on Shyam’s sell-off proposal as it was separate from Roys’ gift initiative. In a letter dated 24th August, NDTV had requested for postponement till NDTV replied to issued raised by MIB in relation to proposed gift.

FIPB, however, noted that the impact of sale of Shyam’s stake to GA European on Roys’ gift proposal would have to be discussed with NDTV as FDI cap of 26% is likely to be exceeded if both the proposals are cleared.

Two days before FIPB meeting, NDTV informed Bombay Stock Exchange on 24th August that both the proposed share transfers were pending before FIPB.

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