The Reserve Bank of India (RBI) may deem the investments made by US-based hedge fund DE Shaw in Hindi daily Amar Ujala in 2007 null and void as the central bank is of the view that the hedge fund has violated the external commercial borrowing (ECB) guidelines.
In 2007, DE Shaw had picked up an 18% stake in Amar Ujala for R117 crore, thereby valuing the company at around R 650 crore. The fund at the time of making the investment had sought the approval of the Foreign Investment Promotion Board (FIPB).
The board had approved the FDI in the Maheshwari family-owned media company with the rider that DE Shaw and Amar Ujala would inform the government about any structural change in the investment.
Subsequently, in December 2008, DE Shaw got into ?amended agreements? with Amar Ujala, wherein it was assured a minimum fixed return of 25% on its investment. This structural change in the investment agreement between the two parties was never intimated to RBI or the Foreign Investment Promotion Board.
?RBI is of the view that in this case there is a breach of Foreign Exchange Management Act (Fema) guidelines both in terms of classification of investment as an equity investment and also assuring a fixed rate of return much above the stipulated range even if it is classified as an ECB ,? a government official handling the case said.
According to RBI guidelines, only instruments that are fully and mandatorily convertible into equity within a specified time are reckoned as part of equity under the FDI policy. Foreign investment through any other type of preference shares or debentures are considered as debt and require conformity with ECB guidelines.
?This clearly states that any investment, apart from equity investment, having any returns associated with it, shall be ECB and shall accordingly be allowed to come as per law. In this case DE Shaw did not follow that route,? the official added.
When contacted, an Amar Ujala spokesperson declined comment, saying the matter is sub judice.
The fund has now filed a case with the Delhi High Court, seeking an injunction to restrain the promoters with majority shareholding from selling or transferring their shares.