US Virgin Island-based Atlantic Tele-Network has given up its bid to own 100 percent of Cellular One's parent company, Bermuda Digital Communications Ltd. (BDC)

Atlantic Tele-Network announced on Friday that the Bermuda Monetary Authority has denied permission for it to acquire more than 60 percent of the stock of BDC.

Even though Atlantic Tele-Network is in possession of a valid 114b licence which exempts it from normal 60/40 regulations, it has fallen foul of certain exchange control regulations which give the BMA a discretion to prohibit the transfer of securities.

Foreign exchange regulations concerning movement of funds have been scaled back in recent years.

However there are still provisions on the statute books which deal with the transfer and issue of securities.

The sale of BDC would have meant foreign ownership of Bermuda's second largest cellular phone company, and it is understood that the Ministry of Telecommunications was strongly opposed to this outcome.

The rejection from the regulatory body came as a great disappointment to Atlantic Tele-Network principal, Cornelius Prior, who said: “Our lawyers have told us that it is debatable whether this ruling is legally correct.”

However, the company does not wish to enter into a dispute with the Bermuda authorities, and has decided not to appeal the ruling.

BMA spokesperson Munro Sutherland said: “The Controller turns down transfers of shares with some regularity.”

It is unclear why Atlantic Tele-Network's application would have been turned down on this occasion when the company has been approved as a “bona fide” purchaser in the past. Atlantic Tele-Network already owns 43 percent of BDC and should have been the subject of BMA due diligence when it originally became an investor in BDC.

Mr. Sutherland could not comment specifically on the BDC case, but disclosed that there was a standard process whereby a proposed purchaser's lawyers would apply for permission from the BMA in order to own securities in a local company.

He added that the BMA would consider the applicable “legal threshold” of shareholding in each case. Unless a foreign purchaser has an exemption (114b licence) it is not allowed to own more than 40 percent of the shares in a Bermuda company.

Informed that Atlantic Tele-Network is actually in possession of a valid 114b licence, Mr. Sutherland said that private companies were also subject to certain foreign exchange regulations governing transfers of securities to foreign owners.

He said the BMA would also have regard to “very evident ministerial policies” such as the current Government policy which only supports licences for up to 60 percent ownership by non-Bermudians for any class B carriers.

The BMA officer involved in foreign exchange control, John Hill, said that exchange control decisions were based on the Exchange Control Regulations 1973 which state:

“Where a discretion is under these Regulations vested in the Minister or the Controller, such discretion shall be exercised with the object of protecting the foreign exchange reserves of Bermuda, promoting its economic welfare or ensuring compliance with these Regulations or other provision of law.”

Foreign owners are not normally allowed to own more than 40 per cent of Bermuda companies, however this regulation was tending to scare away foreign investors.

Consequently, so-called 114b licences were created to grant exemptions from the 60/40 regulations and allow higher proportions of foreign ownership.

Mr. Prior said: “We were disappointed because we had been led to believe that when the government gave us an exemption to increase our shareholding in order to modernise the company, at that time we had understood that there was no limit and that is also what the shareholders had believed.”

He added: “We will continue with our existing equity investment and management agreement with BDC, including rolling out some new services for Cellular One.”

BDC principals Michael Leverock and Kurt Eve could not be reached at the Cellular One offices yesterday.