MP petitions against Bharti Infratel IPO

The Securities and Exchange Board of India is examining complaints seeking the rejection of the offer document filed by telecom tower company Bharti Infratel for an Initial Public Offering.

This is the first instance of such requests received by Sebi under the new framework for 'Rejection of offer documents' it announced on October 9.

The regulator has sent a copy of these complaints to Bharti Infratel.

The latter has planned to raise up to Rs 5,500 crore (Rs 55 billion) through the IPO.

The company is 13.9 per cent owned by financial investors, including Kohlberg Kravis Roberts & Co, Macquarie Group, Citigroup, Investment Corporation of Dubai and AIF Capital.

In an email, the Bharti group spokesperson said, "Sebi has forwarded to us certain complaints received by them in relation to the proposed IPO of Bharti Infratel.

"We have already replied to Sebi, pointing out that all necessary disclosures on the matter have already been made in the detailed DRHP (preliminary prospectus) filed."

Adding: "We have given all relevant details and rationale to counter all these complaints and allegations, and accordingly have requested Sebi to reject these complaints, as these are incorrect and do not fall under the purview of the said new Sebi regulations."

Sebi's spokesperson did not respond to an email seeking comments.

The complainant, Maheshwar Hazari, a Member of Parliament, said in a letter dated October 15, addressed to Sebi chairman U K Sinha: "The company has virtually no assets under its name, as most of the schemes of arrangement are pending before courts and the company may not get approvals." Business Standard has reviewed a copy of this letter.

Bharti Infratel is a provider of telecom towers and related infrastructure and on a consolidated basis, is one of the largest in India, "based on the number of towers that Bharti Infratel owns and operates and the number of towers owned or operated by Indus, that are represented by Bharti Infratel's 42 per cent equity interest in Indus," according to the offer document.

In 2007, Bharti Infratel entered into a joint venture, called Indus Towers, with  Vodafone India and Aditya Birla Telecom.

Infratel and Vodafone hold 42 per cent each and Aditya Birla holds16

per cent.

Through various schemes of arrangements, the companies are seeking to transfer tower assets held by each of them to a subsidiary.

Thus, Bharti Infratel has transferred a significant portion of its tower assets to Bharti Infratel Ventures.

These subsidiaries will then transfer these assets to Indus Towers. The latter did not respond to queries seeking comments.

The MP's complaint said even the first leg of this transaction had not reached finality.

"Even the transfer of towers from group company Bharti Airtel to Bharti Infratel Ventures Ltd has not reached finality as the commissioner of income tax, Delhi, has filed an appeal against the order of the High Court of Delhi sanctioning the Bharti Infratel Demerger scheme," the letter said.

The commissioner objected the merger on the grounds that "the passive infrastructure assets were transferred under the scheme without any consideration and, hence, the transfer is in the nature of a gift and should not be covered under the purview of the Companies Act."

A Bharti spokesperson noted details of the case were clearly disclosed in the offer document filed with Sebi.

The document says the Indus scheme is also pending with the court.

"The department of income tax has also filed an objection petition against the Indus Scheme before the Delhi high court on the ground, inter alia, that the notice of the Indus Scheme was not issued to the central government, transfer of shares under the scheme was proposed to avoid tax and stamp duty and transfer of shares was proposed without consideration, which was ultra vires the provisions of the Companies Act, schemes under which the transferors have acquired assets are sub judice and, therefore, no assets can be transferred under the Indus Scheme," the document said. 

"It is requested that the IPO of Bharti Infratel shall be not allowed till all its legal cases as mentioned above have not reached finality.

"If this issue is allowed and if the permissions/schme of amalgamations fail to get the sanctions of the Hon'ble court the company may not be able to achieve its objects of issue and may not be able to unlock value for investors," Hazari said in his letter adding, "This therefore is a fit case where the DRHP of Bharti Infratel should be rejected."