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DIPP seeks views of corporate affairs ministry on Sony Pictures deal

Sounak Mitra/New Delhi 19 Oct 12 | 12:30 AM

The department of industrial policy and promotion (DIPP) has asked the Foreign Investment Promotion Board to seek the views of the Ministry of Corporate Affairs on the deal between Sony Pictures and Multi-Screen Media (MSM) as to whether its sealing undervalued the shares and rights of the minority shareholders.

In June, MSM had sought approval from FIPB for transfer of 21.11 per cent holding of Atlas Equifin Pvt Ltd in MSM India to SPE Mauritius Investments Ltd, Mauritius. It also asked permission for transfer of 20.28 per cent stake of MSM India, held by Grandway Global Holdings Ltd, Mauritius to SPE Mauritius Investments Ltd, Mauritius.

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After the sale and transfer of shares to SPE Mauritius Entities, SPE Mauritius will hold 94.39 per cent in MSM India, increased from 62 per cent. Foreign holding in MSM India would increase from 87.99 per cent to 100 per cent.

MSM SHAREHOLDING
Shareholders

Holding (in %)

SPE Mauritius Holdings 50.7
Grandway Global Holdings  20.3
SPE Mauritius Investments 20.0
Atlas Equifin  12.1
Emerging Markets Growth
Fund, Inc
3.1
American Funds Insurance  
Series, International Fund
0.9
The New Economy Fund 0.9
Capital International
Emerging Markets Fund
0.6
American Dunds Insurance
Series, Global Growth Fund
0.2
Source: FIPB/DIPP documents

DIPP has also mentioned that an examination of fund flows revealed that funds were routed through Mauritius-based Conduit Company through a multi-layered structure to avail the India-Mauritius DTAA. “This is a clear case of treaty shopping," according to DIPP documents, available with Business Standard.

FIPB is likely to discuss the issue at its meeting on October 19, according to an FIPB document.

MSM did not comment on the issue saying the concerned spokespersons were travelling. The ministry of corporate affairs declined comments on the issue.

There were seven promoters, including Singapore-based investment banker Rakesh Agarwal, Shemaroo Films Managing Director Raman Maroo, World Media Group’s Sudesh Iyer, actor Jackie Shroff and businessman Sadanand Sule, together owned 32 per cent in the broadcaster via their consortium company Atlas Equifin (12.11 per cent) and Grandway Global Holdings (20.28 per cent), as widely reported earlier.

Atlas Equifin was shown as the only resident shareholder, while Grandway was shown as the non-resident shareholder. Shares held by Grandway Global Holdings, Mauritius were transfer to SPE Mauritius Investments Ltd, Mauritius.

DIPP also said that the “approval should be given once the company pays the due taxes on the transaction based on the facts and valuation of shares arrived at after examination." The Department of Revenue (DoR) has also said that the taxation of dividend and future capital gains on alienation of shares by the investor shall be governed by India-Mauritius DTAA, on the principle of ‘resident based taxation’.

During FY11, MSM’s revenue stood at $395.1 million, while its revenue stood at $592.5 million during FY12. The company’s Ebidta has also increased from 67 in FY11 to 139.9 in FY12, according to the company’s balance sheet.

MSM runs eight channels — Sony TV, SET Max, SAB TV, Sony Pix, AXN, Animax and the recently launched music channel Mix and sports channel Six.

In 2009, MSM failed to sell 32 per cent stake to the BK Modi Group due to differences over management rights and a lack of clarity on exit options. The deal was then valued at around $300 million.

In 2010, a battle erupted among various stakeholders, with the minority shareholders filing a petition before the Company Law Board. The board had issued an interim order restraining MSM from raising the paid-up capital of the company. The shareholders had charged Sony Pictures Entertainment with mismanagement and oppression of minority shareholders.

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