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March 19, 2010
News Corporation-owned Star TV's plan to acquire an additional stake in Indian satellite pay TV operator Tata Sky appears to be placed on hold, following regulatory hurdles. Star TV currently has a 20 per cent stake in Tata Sky, with the remaining held by Tata Group (70 per cent) and the Singapore government's investment company Temasek (10 per cent).
Earlier this year, Star TV signalled its intentions to increase its stake in Tata Sky by proposing to acquire a 49 per cent holding in Tata Sky Investments (TS Investments). TS Investments, in turn, intended to acquire a 20 per cent stake in Tata Sky for Rs3.24bn ($67m). Star's proposal for hiking the stake was said to have been forwarded by the Indian Ministry of Information and Broadcasting to the FIPB (Foreign Investment Promotion Board), which was due to give its verdict on the acquisition later this month. Local press reports now indicate that Star TV has withdrawn its proposal from the board, having learnt that both the ministry and the FIPB were not in favour of the acquisition.
News Corporation's attempts to increase its say in Tata Sky's affairs are by no means over with this latest withdrawal, with officials at the broadcaster stating that they will reapply after seeking legal advice.
Key concerns raised by the government appear to be that following the additional 20 per cent acquisition, Star TV's stake in Tata Sky would increase to 29.8 per cent. Current Indian regulations stipulate that investments in satellite pay TV platforms through foreign direct investment or by broadcasters cannot exceed 20 per cent.
Regulations governing foreign investments in Indian companies were relaxed last year, with new rules stipulating that foreign investment in Indian companies through companies in which Indian entities have a majority stake will not counted towards the foreign investment limit. Foreign investment limits currently vary depending on the company, investment in satellite pay TV is limited to 49 per cent (20 per cent from foreign direct investment and 29 per cent through foreign institutional investors).
Star TV's investment in Tata Sky was touted as being key to the Indian operator's future expansion, especially as losses mount. Tata Sky had accumulated losses of approximately Rs29bn on its books at the end of Q1 2009, up 65 per cent year on year. Since 2008, competition in the sector has been especially fierce as new players have entered. Currently, six players operate in the sector, and in a bid to ramp up subscribers and compete with low cost analogue cable TV, satellite operators such as Tata Sky have had to lower subscriber fees and subsidise both content and hardware. These losses also appear to have had an effect on Tata Sky's valuation. In 2007, Tata Group sold a 10 per cent stake in the JV to Temasek for $56m, valuing Tata Sky at $560m. News Corporation's recent proposed acquisition of a 20 per cent stake in Tata Sky was forRs3.2bn ($67), valuing Tata Sky at approximately $335-$350m, a drop of over 67 per cent.
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