India's Loop Telecom Faces Loss of Operating Licenses

­India's Loop Telecom is facing the possible forfeiture of its 21 operating licenses after the Department of Telecom asked the ministry of corporate affairs (MCA) to carry out a second investigation into the company's shareholders.

There have been suspicions that India's Essar Group is financially backing the company, despite being a 33% shareholder in Vodafone Essar. The Essar Group says that has just a 9.99% indirect holding in Loop Mobile, which is within the legal limit of no more than 10% in a second operator.

The MCA carried out an earlier investigation and reported that Essar has been routing funds to Loop Mobile via other companies - a claim that Essar has denied.

 "It has been corroborated through the findings of MCA that there is significant financial control over STPL that in turn owns 76.7% in Loop. Thus, the Essar Group can be stated to have significant control over Loop. It is therefore suggested that the issue of control through exaggerated debt funding by Essar Group be made a part of the proposed show cause notice to Loop Telecom," an internal notice within the Department of Telecom concluded. The notice was seen by the Economic Times newspaper.

The Essar Group is also in legal dispute with Vodafone over its reported plans to use Loop Mobile to build another national mobile network. ZTE recently won a contract from Loop Mobile for a national network rollout - although no specific details were provided.

Essar Group was also recently reported to have moved part of its 33% stake in Vodafone Essar to a new stand-alone company with the intention to use it as collateral for fund raising purposes. It is estimated that the Essar Group could use the state to raise up to US$1.2 billion - a move which raises further speculation about the oft-rumoured plans to build another mobile network in competition to Vodafone.

The rebranding of Mumbai based mobile network, BPL Mobile as Loop Mobile earlier this year also heightened speculation that Essar Group is proceeding with its national network plans.

On the web: Economic Times

Posted to the site on 4th October 2009