Malaysia's Astro to increase stake in Sun Direct

New Delhi: Malaysia’s Astro Group is planning to increase its stake in Sun Direct, India’s No.2 direct-to-home (DTH) player. The Group already holds 20% stake in Kalanithi Maran’s DTH venture through its subsidiary South Asia Entertainment Holdings. The move takes advantage of recent changes in the way FDI in Indian companies is calculated.

According to the proposal submitted to the foreign investment promotion board (FIPB), Astro will pick up 37.50% stake in Kal Media Services, a company owned by the Maran family. Kal Media Services will then pick up 40% stake in Sun Direct TV, giving Astro an effective indirect stake of 15% over and above its existing 20% stake. This will take Astro’s effective total control over Sun Direct to 35%.

However, the new FDI calculation formula does not recognise foreign stakes in investing companies like Kal Media as FDI, so long as they are owned and operated by resident Indians. So, Astro’s FDI in Sun Direct will remain at 20%, even though its effective control will touch 35% (20%+15%). As per earlier rules, FDI would have touched 57.5% (20% direct stake + 37.5% in Kal Media) well above the permitted 49% ceiling. As per the earlier formula, even the indirect foreign investments in locally-owned firms was counted as foreign investments.

In March 2007, Astro group had acquired 20% FDI in Sun Direct for an estimated Rs 550 crore, taking its enterprise value at Rs 2,745 crore. At the same valuation, Astro’s proposed investments in Sun Direct TV could be over Rs 1,000 crore, sources said.

The latest move is based on the Press Note 2 and 4 of 2009 and the Circular 1 of 2010 on consolidated FDI policy, which allows Sun Direct to receive the said foreign investments without breaching the existing FDI cap for DTH. The move follows Rupert Murdoch’s Star recently increasing its stake in Tata Sky by picking up a minority stake in an Indian subsidiary, which then made the required investments in Tata Sky.

After mandatory government approvals, the Maran family will directly own 40% stake in Sun Direct while another 40% will be owned by Kal Media Services in which Astro will have a 37.50% stake. The balance will be owned directly by Astro’s subsidiary--South Asia Entertainment Holdings.

According to experts, such cases highlight the need to expand existing foreign investment caps in the media and entertainment sector. Recently, the Telecom Regulatory Authority of India (Trai) too proposed increasing FDI cap for DTH from 49% to 74%. The information and broadcasting ministry is expected to accept the Trai recommendations, sources said.

Source: The Financial Express

For live help and support check our forum : http://www.indiandth.in /