Another twist to Essars Loop

Written by Anandita Singh Mankotia | Rishi Raj | New Delhi | Updated: Jun 28 2011, 10:49am hrs
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Who are the real owners of Loop Telecom The Ruias of the Essar Group or the Khaitans as claimed by the former The new twist in the case has come with the deposition of Rajeev Chandrasekhar, former CEO and chairman of BPL Communications, before the CBI.

Sources in the investigating agency told FE that Chandrasekhar, who is now a Rajya Sabha member, in his statement has said: All shareholders of BPL Communications negotiated with representatives of Essar. According to sources, he has underlined that nobody from the Khaitan group was present in the negotiations.

BPL Communications was sold by Chandrasekhar and other investors in July 2005 to the Essar Group for R4,400 crore and renamed as Loop Telecom in 2007. With this new piece of evidence surfacing, the CBI probing the telecom scam plans to solve the ownership riddle before filing the third charge sheet in the case.

When contacted, Chandrasekhar declined to comment as depositions made before the CBI are confidential. Till the time of writing, the Essar Group had not responded to an email query on the subject.

The matter is before the investigating agency because of the complex ownership of Loop Telecom. It is alleged that the Ruias are the real owners, while the Khaitan Group (owned by Kiran and IP Khaitan) merely acted as a front to acquire licences for 21 circles in January 2008. Kiran Khaitan is the sister of Essar group promoters Shashi and Ravi Ruia.

Cross-holding norms prevent a company from holding more than 10% stake in one mobile firm in a telecom circle, if it already owns another mobile firm in the same circle. If it is proved the Khaitans acted as a front for the Ruias to bypass the law, Essar could be charged with violating the cross-holding norm, since the group already has 33% stake in Vodafone-Essar, which has operations in several circles as Loop.

In 2005, it was Hong Kong-based Hutchison which was the majority stake holder in Hutch-Essar. Vodafone bought out Hutchs stake in February 2007.

Subsequent to buying out BPL, the Essar group had merged the Tamil Nadu, Kerala and Maharashtra circle operations of the company with Hutch but the Mumbai circle could not be merged due to some rift between Hutch and Essar. Till date, the Mumbai operations are handled by Essar.

Later in 2007, when BPLs name had changed to Loop, the company applied for 21 more licences and got them in January 2008 when former telecom minister A Raja granted licences to eight other firms.

Ever since the matter has come under the CBIs investigation netting some high profile corporate groups and their executives in jail, the limelight has been on the Ruias and Loop. So far, in the two charge-sheets, their name has not figured but speculation is high that they may be named in the third one.

The Essar group has consistently denied that they either held equity beyond 10% or that Khaitans acted as a front for them. The sister of Shashi and Ravi Ruia, Kiran is married into the Khaitan family who are the owners of the Khaitan group and there are financial linkages between the two; and hence, the charges of a front company emerges.

The contention of the Essar group is that they held only 2.15% in Loop Telecom in September 2007 when the applications for licences were made and the majority owners were the Khaitans.

This has subsequently come down and is a little over 1% now. In this, they have received support from the corporate affairs ministry recently.

However, this has become controversial because in 2008, the same ministry had held the view that there were significant financial linkages between the Ruias and the Khaitans pointing the real ownership towards the former.

A clean chit given by former minister of state for telecom, Gurudas Kamat in reply to a Parliament question in April 2010 has also become controversial. Kamat had then said that there was no violation of the cross-holding norm by the company.