Meenakshi Verma Ambwani & Roshini Singh
NEW DELHI: Star India is making an attempt to raise its effective holding in direct-to-home broadcaster (DTH) Tata Sky by taking advantage of
foreign investment rule changes made about a year ago. The Rupert Murdoch-controlled company has asked the Foreign Investment Promotion Board (FIPB) for permission to buy a 49% stake in TS Investments, an investment firm of the Tata Group, which, in turn, will buy a 20% stake in Tata Sky for Rs 324 crore.
Current rules cap direct foreign investment in an Indian DTH operator at 20%. Foreign funds are allowed to buy up to an additional 29%. But Star is hoping to benefit from guidelines announced in February 2009, which said that investment through companies owned and controlled by Indians would not count in the calculation of foreign investment.
This meant that despite foreign ownership of as much as 49%, investments by such companies in key sectors, where foreign participation is capped, would not be counted as foreign investment. If the deal is approved, Star India’s effective holding in Tata Sky, India’s second-largest DTH service provider after the Zee group’s Dish TV, will rise to 29.8%.
India’s DTH industry, fragmented between six players, is in the middle of an intense battle to add subscribers in a market that is seen growing by about 50% over the next three years. But the drive to win new customers is coming at a price: companies are selling the set-top-boxes, through which the signals are received at homes, at steep discounts and most of them are incurring heavy losses.
Dish TV, which has about a third of India’s 20 million DTH users, has been raising money to fund its expansion. India’s only listed DTH provider issued global depository receipts to raise $100 million (Rs 465 crore) in November and has plans for a Rs 1,200-crore rights issue in June.
Tata Sky, which has about 4.5 million subscribers, sold a 10% stake for $56 million to Temasek in 2007. Star India owns 20% and the Tatas the rest. Reliance Communications’ Big TV, which has some 3 million users, started talks to sell a stake to private equity firms last year, but there has been no apparent outcome so far. Airtel Digital Television, Sun Direct and Videocon D2H are the other major DTH service providers.