The ministry has said that FIIs can invest in news channels and
companies managing them, but the total foreign investment component
will remain capped at 26 per cent. In effect, this means that FII
investment has to be part of the total foreign investment allowed,
including foreign direct investment.
An official in the I&B ministry said that it was a matter of
interpretation, but since some clarifications were sought by media
companies, the ministry has decided to remove the ambiguities.
The official also pointed out that it was only after this ambiguity
was removed that NDTV got a clearance recently from the ministry
for uplinking its proposed business channel from India.
On 10 December, 2004 NDTV had issued a notice to the Bombay Stock
Exchange (BSE) stating that it has asked FIIs, NRIs and all persons
resident outside India not to deal in its shares. Pointing out that
the ministry of information and broadcasting had amended guidelines
and foreign investment norms for news and current affairs news channels,
the NDTV notice had said that Clause B prescribes that foreign direct
investment (FDI) shall not exceed 26 per cent of the paid-up equity
capital of the applicant company.
The FIIs issue, according to an earlier interpretation of the ministry,
had sent some listed media companies like Television Eighteen Ltd,
TV Today Network and NDTV LTD, scurrying to the government seeking
It had been pointed out by the media companies that keeping a tab
on FII investments in listed companies on a daily basis, where buying
and selling happens on the markets, would be difficult and that
the Companies Act allows FII investment in various sectors, subject
to sectoral foreign investment caps.
Clause D of the guidelines states that while calculating the 26
per cent FDI in the equity of the applicant company, the foreign
holding component, if any in the equity of the Indian shareholder
companies of the applicant company, will be duly reckoned on a pro-rata
basis, so as to arrive at the total foreign holding in the applicant
company. Clause F states that it is obligatory on the part of the
company to take prior permission from the MIB before effecting any
alteration in the foreign shareholding patterns and the shareholding
of the largest Indian shareholders.