Sistema's Russian equity plan may hit roadblock :ET

NEW DELHI: Sistema Shyam Teleservices’ (SSTL) attempt to secure equity infusion from the Russian government could hit a roadblock, as the
existing rupee-rouble debt agreement between India and Russia does not permit such deals, a government official told ET.

The Russian government was looking to buy a 20% stake in SSTL for over Rs 3,000 crore through the funds available under the rupee-rouble debt agreement. Currently, the rupee-rouble trade reserve parked with the Reserve Bank of India (RBI) has a balance of about $2 billion.

The agreement, which was renegotiated in 2007, allows the debt funds to be used by the Russian government or Russian companies for investments in India. The funds available to the Russian government, however, cannot be used for buying shares and capital market transactions. “...(the funds) shall be used for productive purposes and not for making profits out of transactions on the capital market,” states the reworked agreement.

Sistema has sought “technical clarifications” on the matter from the two governments. Company officials refused to comment on the issue. The Foreign Investment Promotion Board (FIPB) had cleared the proposal in November. SSTL, formerly known as Shyam Telelink, is a joint venture between Shyam Telelink and Sistema JSFC.

Sistema holds 73.7% stake in the joint venture while the Shyam group holds 23.79%. The company is an aggressive player in the telecom market and has launched its services under the MTS brand.

According to the proposal, the unlisted SSTL would issue 662.75 million shares, representing a 19.8% stake, on a preferred basis to the Russian Federal Property Agency at Rs 49.31 a share. Simultaneously, the company would issue up to 228.55 million shares to its Indian promoters at par, or Rs 10 per share. The deal would reduce Sistema’s holding in SSTL to about 54%. The share issue to the Indian promoters would help SSTL keep foreign stake below the 74% cap.

The company, which received a pan-India licence in March 2008, currently has over 3 million customers. SSTL is looking to raise $2 billion to ramp up its infrastructure, and is in talks with the China Export & Credit Insurance Corporation (Sinosure) and Japanese banks.

Between 1953 and the collapse of the Soviet Union in 1991, bilateral trade between the two countries was denominated in rupees and based on annual plans. The agreement was renegotiated in 1993 under which the existing rouble credit was denominated in rupees and a repayment schedule was drawn up involving repayment of about $1 billion of rupee equivalent of Russian currency over a 12-year period beginning 1994 and lower amounts for another 33 years.