FE Editorial : FDI caps vs Sebi rules

A A

The Financial Express: Nov 26 2012, 03:13 IST

Though the government has cleared 49% equity limits for FDI by foreign airlines in the Indian aviation sector and may, BJP willing, do the same for both pensions and insurance, it will take some more fine-tuning before we see actual FDI coming into these sectors. Part of the problem, of course, is that with the economy looking as bad as it is, and the government not having done much after an initial burst some months ago to dispel the notion of policy paralysis, foreign investors are a bit sceptical. An equally large, if not larger, problem is that various government policies run counter to another, making it difficult for FDI to come in. Take the example of a foreign airline that buys a 49% stake in, say, Kingfisher. Under the Sebi open offer rules, once the acquirer buys more than 25% of a company’s shares, it needs to make an open offer for another 26% shares. So, if Kingfisher investors want to get out the moment they see someone coming to buy the company and tender their shares for this, the foreign airline has breached the 49% rule since it will now have 74% of Kingfisher’s equity. The same logic applies for pensions and insurance, even if the FDI limit is fixed at 26%—a 26% equity stake triggers an open offer and takes the FDI stake to 52% immediately. One solution then is to offload the extra stake later—so the airline that buys 49% stake from Vijay Mallya can buy

... contd.

Ads by Google

Single Page Format

1 | 2 | Next