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Sistema to buyback 17.14% stake in Indian subsidiary from Russian federation


Russian conglomerate Sistema JSFC has signed an agreement with the Russian Federation for State Property Management to buy back 17.14% stake owned by the federation in Sistema Shyam TeleServices (SSTL), an Indian subsidiary of Sistema JSFC. Under the agreement, payment for the shares will be made to the Russian federal budget in installments over a period of 5 years: 30% in 2016, 25% in 2017, and 15% in each of 2018, 2019 and 2020.

Russia’s Federal agency for State Property Management acquired 17.14% stake in Sistema JSFC’s Indian subsidiary SSTL in March 2011 for Rs 2698.8 crore (~$600 million at that time). At that time, both parties simultaneously signed an optional agreement to sell the shares back to Sistema JSFC after a period of five years for the higher of US$ 777 million or the market value determined by an independent evaluator.

After the Russian Federation acquired 17.14% stake in SSTL in 2011, Sistema JSFC remained as a major investor owning 56.68% of its India unit Sistema Shyam, while Indian investors owned 26.05% stake. By 2014, Sistema JSFC sought for an approval from the Foreign Investment Promotion Board (FIPB) to increase its stake to 73.71% in Sistema Shyam Teleservices, but was turned down by the FIPB in September 2014. At that time, Sistem said it eventually plans to acquire 100% in it Indian subsidiary ( SSTL), however it suggested that this stake increase will happen across multiple tranches than through a single transaction.

SSTL merger with RCOM: In March, Shareholders of Sistema Shyam Teleservices, which owns the MTS brand in India had approved the merger of the company with Reliance Communications (RCOM) in a meeting convened by the Rajasthan High Court. The company confirmed this to MediaNama and a spokesperson from SSTL told MediaNama that this was done through a voting system. However, a formal declaration will be made publicly after all the votes have been counted. The deal between RCom and SSTL is valued at around $690 million (~Rs 4,500 crore at this point in time).

Related investments

However, Sistema JSFC isn’t the only foreign company which wanted to  acquire a higher stake in its Indian counterpart, after India allows 100% Foreign Direct Investment (FDI) in telecom in 2013:

– In October 2014, Telenor Group acquired 100% of the shares in its India unit Telewings held by Lakshdeep Investment & Finance. The process was finalized after Telenor received approval from the Indian government’s Foreign Investment Promotion Board (FIPB) to increase its stake from 74% to 100%.

-In September 2014, FIPB had deferred Verizon’s proposal to increase its stake in Verizon Communications India to 100% from the existing 74%.  Verizon had previously setup Verizon Communications India by forming a joint venture with Videocon Group’s Leo Communications way back in 2007, as indicated by a NetworkWorld report.

-In June 2014, AT&T had also sought FIPB approval to acquire Mahindra’s 26% stake in its Indian arm AT&T Global Networks Services India. FIPB approved this proposal in July 2014.

-In April 2014, Vodafone group had bought out Vodafone India’s minority stakeholders like Analjit Singh and Piramal Healthcare to acquire 100% stake in the company. It had paid Rs 8,900 crore for Piramal Healthcare’s 11% stake and Rs 1,241 crore for Analjit Singh’s 24.65% stake.

– In 2013, Singapore-based Singtel had also sought government approval to buy out its minority shareholders in Singtel Global (India) Pvt Ltd in October last year and had received FIPB nod in January 2014. Note than Singtel also owns 32.5% stake in Bharti Airtel in India.

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