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News |  11 Sep 2008 15:59 |  By RnMTeam

Govt allows demerger of FM business from parent companies

NEW DELHI: The Indian cabinet approved companies holding FM licenses to set up subsidiaries on Thursday.

The foreign investment limit of 20 per cent would stay, Information and Broadcasting Minister Priyaranjan Dasmunsi a news conference, says a Reuters report.

The cabinet allowed companies operating for less than five years to transfer shares into subsidiaries subject to the foreign investment cap being maintained, and the majority shareholders remaining the same. The policy thus far did not allow change in ownership pattern through transfer of shares of the major shareholders to any new shareholders without the written permission of the I&B ministry.

Requests for transfer of shares for the purpose of creation of a subsidiary company, amalgamation of companies of the same group, de-merger of company etc. would be allowed within the period of five years also subject to the fulfillment of the following conditions :-

a) The majority shareholders / promoters would continue to remain as majority shareholders / promoters and together should hold at least 51% of the total shares.

b) The new corporate entities would maintain their FDI component within the prescribed limit and would not violate the terms and conditions of the tender document and Grant of Permission Agreement.

c) The new corporate entities should have minimum prescribed net worth and adhere to all the terms and conditions of the tender document and the provisions of the agreement.

d) The new company shall sign a fresh agreement with Government on identical terms and conditions ( except for transferability of shares as provided herein) for the remaining period of license of the original company.

e) Such transfer of shares would be permitted only once during the first five years period from the date of operationalization.

f) No new tax regime will be designated to provide any incentive to encourage creation of subsidiaries, merger / demerger, amalgamation of FM Broadcasting companies.

g) Any tax implication arising out of such mergers / demergers or amalgamation would be governed by the provisions of the Income Tax Act,1961 as applicable from time to time.

h) The processes / action taken by the licensee companies including for formation of new companies / subsidiaries / mergers / amalgamations and /or disinvestments of undertakings, or part thereof, of existing companies etc., need to be compliant with the companies Act, 1956. The applicant shall not dilute such requirement through its Articles of Association or any agreement.

According to the "expansion policy of private FM radio", till now, permission could not be granted before a period of five years from the date of operationalisation and is subject to the condition that the new shareholders conform to all the prescribed eligibility criteria.

"The I&B ministry has been authorised to grant permission to FM broadcasting companies for creation of subsidiaries, mergers or demergers or amalgamation of companies by way of transfer of shares," the minister said. "It would give the financial flexibility and the growth of the FM industry would be protected".

Several FM radio operators, including Reliance ADAG, which runs Big FM and BAG Films, which runs Radio Dhamaal, stand to benefit due to this move. Since the government did not earlier make a distinction between the radio and non radio businesses of a company, it had to hand over four per cent of the total revenue, including that from the non radio business.

Last year, several FM radio companies had sought permission from the information and broadcasting ministry to demerge their radio business into a separate subsidiary for better operational efficiency. Among the petitions was also a relief from the 20 per cent cap on FDI. This wish has however not been granted.

Opines  Big FM COO Tarun Katial, "We welcome the decision taken by the Cabinet,this is a step in the right direction to further the growth of the Radio industry. It would help companies having multiple businesses carve out the Radio business into a separate legal entity. Being an independent legal entity it would have financial flexibility to raise resources for future growth. Valuation of the FM Radio business on Stock Exchange would help substantial unlocking of shareholder value. Our application for demerger of the Radio Business from Adlabs Films Limited to Reliance Unicom Limited would now be approved in the light of the cabinet decision."

AROI president Apurva Purohit says, This comes as a very favorable move for the industry especially for broadcasters who had applied for this de-merger. We're hoping that this announcement will also pave way for further deregulation for the industry by way of increased FDI, multiple licensing and allowing news and current affairs on FM radio. We eagerly look forward to Phase III and hope that the Government works on expediting the process....

When contacted, BAG Films & Media Ltd Managing Director Anurradha Prasad said, It is a good move by the government which helps us to unlock the value of our companies. It should be like broadcast companies where there is a different section for content, marketing, sales etc. it would help us in the growth of the FM as an industry. This move comes as a surprise as just last week we had a major blow where the biddings were cancelled....

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