In M&A deals between mobile operators, the resultant entity may have to pay a ?transfer fee? to the government based on the value of spectrum allocated to the acquired company within three years from the date of application of the merger.
The new rule, being mulled by the department of telecom (DoT) that is finalising the M&A guidelines, is likely to be applicable even to spectrum bought through auctions held in November 2012 and March 2013. This means that any spectrum bought in 2012 and 2013, but yet to be ?allocated? by the government, will be subject to the lock-in rule.
This ?transfer fee? would be calculated as ?30% of the difference between market price on the date of application of merger and price already paid for the spectrum allocated to the acquired company within three years of date of application of merger, which shall be subject to a minimum of 5% of the market price of the aforesaid spectrum?.
?Lock-in conditions should be made applicable for the spectrum allocated to the acquired company within a period of three years from the date of application of merger. This spectrum may be incremental spectrum or initial spectrum,? said a DoT note on ?M&A during lock-in period?.
Under the ‘lock-in’ rule, promoters of a company are refrained from selling equity three-years from date of allotment of spectrum or till fulfillment of all rollout obligations, whichever is later. (Current rules give the rollout timeline as 5 years.)
However, the telecom commission recently recommended that an M&A deal can be proposed even prior to completion of the lock-in period, but that would incur a ?fee?.
?A transfer fee will become leviable in respect of the allocated spectrum within three years and being transferred to the other entity as part of a merger and acquisition exercise,? said the note.
Spectrum belonging to the acquiring company will not be charged.
The note added that ?the transfer fee is in the analogy of income tax and capital gains tax and shall be applicable on the spectrum allocated within three years of the date of application of merger to the acquired company?.
On rollout obligations, the DoT note said that it would get transferred to the new entity resulting from the M&A.
Earlier, the telecom commission, in its recommendations to the empowered group of ministers (EGoM), had said that in case a merger or an acquisition is proposed before the three-year lock-in period has expired, the resultant entity should pay a fee based on the valuation of the transaction.
Industry players are of the opinion that any move to impose an additional fee on M&A’s would ?hamper the progress and roll out of capital intensive telecom projects as shareholders may not be able to invest further in equity?. These recommendations would now require the approval of the EGoM, chaired by finance minister P Chidambaram, followed by the Cabinet.