Sibal says nothing amiss in selling of stake by alleged beneficiaries of Raja scam

Defending against former telecom minister A Raja’s allegation that neither the Finance minister and the Prime Minister raised objections when the alleged scam beneficiaries were benefiting from foreign investment into their ‘tainted’ companies, telecom minister Kapil Sibal said there was nothing wrong with the funding.

In a statement, he said that the under the rules prevailing in the country then (and now,) any telecom operator can sell up to 49% of his company to any foreign investors, and even more if he sought clearance.

The allegation is that having bought license at around Rs 1,650 crore from the Government, the ‘scam beneficiaries’ sold half to two-thirds of their companies, which had just the spectrum as their sole primary asset, to foreign companies for prices like Rs 4,500 to Rs 6,500 crore.

Arguing in his defence in Court today, A Raja’s lawyer had pointed out that the Finance Ministry and the Prime Minister did not notice anything amiss when they were intimated of these prospective moves by the new licensees.

He argued their silence indicated that they felt there was nothing wrong in giving spectrum at a fraction of their actual price to Indian companies, who then essentially sold fractions for it for many times the amount they themselves bought it from the government for.

Sibal said there was nothing the Government could have done, as such a move was not against the laws.

Raja stands accused of rigging the allocation process so that his favorite companies ended up with the licenses and spectra.

In his hair-splitting style, Kapil Sibal said that it was wrong to say that the alleged beneficiaries of the alleged scam were selling the license or the spectrum. They were, according to him, merely bringing in cash in exchange for giving ownership rights in their respective companies.

Among those who sold their stakes to foreign companies are Unitech Wireless (who sold it to Telenor), Shyam Telecom (Sistema) and Swan (to Etisalat.)

“As far as the alleged sale in Swan and Unitech are concerned it is clarified that what occurred was not sale of the equity but issuance of additional equity,” Sibal said.

However, critics have pointed out that there was little difference between the two as far as the benefit to the Indian partner was concerned. At one go, they were able to raise the value of their company from around Rs 1,650 crore to Rs 10,00- to Rs 12,000 crore. Even though their own stake in the company would go down to 30% or 50%, that share would now be worth much more than the Rs 1,650 crore that they paid the Government.

In other words, without doing much, they were doubling and trebling their investments in the spectrum — reflecting the true value of the commodity. Critics have alleged that the Finance Ministry should have raised an alarm when it found that parts of companies with practically nothing more than a license and spectrum (bought for Rs 1,650 crore a year before) were being sold at several times the value of their only asset.

Sibal, however, maintained there was nothing wrong with the course of events, as far as the raising of funds was concerned.

“On October 18, 2007 M/s Swan issued additional equity to M/s DB Infra and on February 17, 2008 issued additional equity to Etisalat. The additional equity issued to Etisalat was less than 49%, and hence entitled to Automatic route as per existing FDI Policy.

“In the case of M/s Unitech the additional equity issued to M/s Telenor was given FIPB approval in on August 21, 2009. It was also cleared by the Cabinet on October 19, 2009.

“It is clarified that in both these cases what occurred was dilution of equity and not the sale of equity. Therefore, the expression “sale of equity” used by Shri A. Raja is not appropriate as explained above,” he explained.