Determined to increase its stake in DTH venture Tata Sky and fund its expansion plans, leading broadcaster Star India has once again approached the Foreign Investment Promotion Board (FIPB), second time in three months and within weeks of withdrawing its previous proposal.

Star India has proposed floating a joint venture company with the Tata Group which, in turn, will pick up a 20% stake in Tata Sky. Industry experts say this could become a test-case for the government on cross-media holding restrictions, as the proposal will lead to Star upping its stake to 30% in Tata Sky, more than the permissible 20% cap allowed under the cross-holding restrictions.

Last month, Star India withdrew its applications before the proposal came up for discussions at the FIPB meeting with an intention of amending its application. However, informed sources told FE that this happened because the information and broadcasting (I&B) ministry had not supported Star?s proposal citing dilution of the Indian management control in Tata Sky.

According to FIPB sources, this time Star India has made suitable amendments in its proposal, dropping the clause of increasing control of the proposed joint-venture with the Tata Group.

Currently, Star has a 20% stake, the maximum permissible under the FDI norms for the sector, in the DTH venture, Tata Sky. Tata Group has 70%, while Singapore-based PE firm, Temasek, has 10%. Post FIPB approval, Star will have nearly 30% stake in Tata Sky, while Tata group?s share will come down to 50%.

In its renewed proposal sent to FIPB last week, Star had proposed to buy 49% stake in a Tata Group company (TS Investment) that would be formed with the sole purpose of funding Tata Sky. TS Investment, in turn, will pick up 20% stake in Tata Sky for Rs 324 crore, which means Star would automatically pick up an additional 9.8% stake in Tata Sky by virtue of being a 49% partner in TS Investments. Also, TS Investments will have five directors, three of whom will be appointed by the Tata Group while the remaining will come from Star.

Star?s proposal to the FIPB is based on the amended Press Note 2 and 4 of 2009, which allow downstream investment by foreign players if it is routed through an Indian-owned and managed firm. However, this would have led to a breach of the cross-holding restrictions and the 20% FDI cap in the DTH sector as Star already holds 20% stake in Tata Sky, industry experts said. According to the rules on cross-media restrictions, no broadcasting company can hold more than 20% in a DTH firm or vice-versa.

?The definition of a broadcaster is under the scanner now. Any company that is engaged in broadcasting services is a broadcaster. Star India is a broadcaster. No matter where it invests, directly or indirectly, it can not be differentiated from its role as a broadcaster and no broadcaster canown more than 20% in a DTH or a cable firm,? said a media expert.

However, the I&B ministry defines a broadcaster as one that has a valid uplink and downlink licence. In this case, the proposed joint venture partner with Tata Group is Star India B.V, a Netherlands-based Star firm while another group company NDDS, incorporated in middle-east, is the partner in Tata Sky. Both these firms do not have any broadcasting licence. ?If Star’s proposal gets the government nod, the cross-holding norms of I&B ministry will not have any meaning. It’s better the government strikes off its cross-holding norms as it can easily be breached clearly,? said a top executive of a leading DTH firm.

However, Star?s proposal is crucial for the financial health of Tata Sky as it is looking at raising more money to fund the fast-growing DTH business. Even though the DTH sector has been witnessing high double-digit growth recently, the subsidy on hardware (set-top boxes) and lower average revenue per user has contributed to Tata Sky generating losses estimated to be in excess of Rs 2,800 crore on its balance sheet.