Mid-Day issue cleared by RBI

Mid-Day issue cleared by RBI
ENS Economic Bureau

New Delhi, Feb 13: While political parties have sought to put pressure on the Reserve Bank of India (RBI) to withdraw permission given to the Mid-Day group to sell shares to Foreign Institutional Investors (FII), the RBI has confirmed that it has not withdrawn the permission to the group. The RBI gave its original permission on November 17, and confirmed to The Indian Express that it was still valid.

An RBI official told this newspaper that they have studied the law and as per Schedule 2 Regulation 5 (2), the permission has been granted to the company. ``The permission to (let) FIIs hold 24 per cent stake has been given to Mid-Day and it has not been withdrawn,'' the spokesperson added.

The Mid-Day issue generated a lot of controversy with rivals seeking to confuse FII investment with Foreign Direct Investment (FDI). While FIIs have no interest in production, FDIs are investors who are interested in setting up ventures -- in the case of the printing industry, for instance, Time and Newsweek or the New York Times would be considered Foreign Direct Investment.

In the Mid-Day case, as the original RBI approval of Nov 17 says, ``You have our approval to issue equity shares ... to FIIs.'' Approval to FIIs to buy shares -- anywhere between 26 and 40 per cent of the paid-up capital of a firm -- falls under the Foreign Exchange Management Act, 1999. Since this law applies to all firms, if FIIs are to be dis-allowed from investing in media firms, it will have to be sent back to Parliament for amendment. And in the unlikely event of that happening, it can only be prospective -- it cannot apply to issues that have already taken place.

The issue has already opened for subscription on Monday. Bids for the Rs 50-crore bookbuilding IPO, with a floor price of Rs 70, is closing on February 16.

Independent FEMA experts say as per Schedule 2 of the Fema Act, the FIIs can invest up to 24 per cent of any company's equity. ``Many print media companies like Sandesh are already listed on the bourses and FIIs can pick up a stake in these companies... hence, the law is quite clear,'' say experts.

Mid-Day Multimedia, publisher of Mumbai's leading's eveninger, is raising 90 per cent of the issue amount (Rs 45 crore) through the bookbuilding route. The balance amount of Rs 5 crore will be mobilised at a fixed price, which will open for subscription on March 3. Lead managed by IL&FS, the shares will be listed at the two premier exchanges, Mumbai and NSE.

``The controversy over foreign investment in print media and linking it to Mid-Day's IPO is being racked up by business rivals to stymie Mid-Day's growth,'' said Venkat Aiyar, a BSE broker. ``Besides as per schedule 1 of Fema Act, there is a ban on FII invesment in various other sectors like petroleum, NBFcs and even housing finance companies. Yet, FIIs have reached the maximum ceiling in the case of HDFC, HDFC Bank, ICICI and ICICI Bank,'' he said.