Orascom-Hutch deal is a security risk

Category: Government | No Comments | Posted on March 9, 2006

ET reports that National security advisor MK Narayanan has written a letter to the department of telecommunications saying that Orascom’s acquisition of 19.3% equity in Hutch International is a threat to national security as Orascom is a dominant mobile operator in Pakistan and Bangladesh.

Egyptian telecom giant Orascom bought a 19.3% equity stake in Hutch Telecom International (HTIL), which has 42% holding in Hutch Essar (HEL). Thus, Orascom gets a board seat and about 10% indirect interest in HEL.

Mr Narayanan’s letter comes at a time when HEL is planning to list its shares on the domestic stock markets. Under the new FDI norms all telecom operators have to take the government’s approval (in view of national security) for foreign equity participation in the company. Therefore, Mr Narayanan’s letter may delay HEL’s IPO plans.

As per the Orascom and HTIL deal, Orascom gets representation on the HEL board. This is a cause of dispute between Essar and Hutch. Essar says it was not taken into confidence when Hutch sold equity in HTIL to Orascom. Recently, Essar wrote a letter to DoT seeking a clarification on whether the entry of a strategic partner (Orascom) at the foreign holding company-level (HTIL) required prior DoT approval, especially if such shareholding change in the holding company triggers changes in the indirect shareholding of Hutch Essar.

HTIL by virtue of its 42.34% direct stake and 6.6% indirect interest, effectively controls 49% in HEL, while Essar owns 33.01% in the company.

Related: Orascom gets foothold in India