Etisalat dealt another setback in India

Dylan Bushell-Embling
11 Jul 2011

The UAE's Etisalat is facing another setback for its Indian joint venture Etisalat DB, in the form of a threatened 70 billion rupee ($1.6 billion) fine over foreign direct investment violations.

Indian authorities have accused Etisalat DB directors of owning direct stakes that exceed the 49% maximum threshold on foreign ownership of certain classes of telecom operators without receiving approval, said.

The Enforcement Directorate has given Etisalat 30 days to respond, and will then decide whether to hand down the fine.

Etisalat purchased a 45% stake in what was then Swan Telecom for $900 million in 2008. But the disputed transaction involves Etisalat buying another 5% stake from financial services group Genex Exim.

The Directorate claims Etisalat did not seek authorization from the Foreign Investment Promotion Board for the second deal, which was required as the deal exceeded the foreign direct investment threshold.

Etisalat said in a statement that it has yet to receive official any communication over the threatened fine.

Etisalat inherited a controversy when Indian authorities last year began investigating the circumstances behind a 2G spectrum allocation from 2008.

The Central Bureau of Investigation has alleged that the then-Swan Telecom bribed officials to receive favorable treatment from former telecom minister A Raja. This probe led to the arrest of Swan's then-MD Vinod Goenka and Reliance DB vice-chairman Shahid Balwa, and the Bureau last month started the process to seize the alleged bribe..

But Etisalat has repeatedly denied wrongdoing, stating that it bought Swan on the good-faith assumption that the license was acquired fairly and legally.

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