Vodafone’s partner in its Indian joint venture is understood to have met bankers in London and Mumbai to prepare for a multibillion-US dollar flotation of its stake in the mobile phone business.
Indian steel-to-retail conglomerate Essar Group retained a 33 percent stake in the venture after Vodafone bought out its original partner, Hong Kong-based conglomerate Hutchison Whampoa, in 2007 for £5.7 billion (US$180 million).
Under the terms of that deal, Essar was given a year-long option under which it could also sell its stake to Vodafone after three years. That period began in May this year.
FLOTATION
However, a flotation of the stake could give Essar, created by Indian tycoons Shashi and Ravi Ruia in 1969, a better return than a sale to Vodafone, advisers to the Indian firm believe, and an announcement could come next month.
While the “put option” gives Essar the ability to sell the entire stake for a flat fee of US$5 billion or sell a portion of it at a fair-market value to be agreed by the parties, a flotation either in London or India could be more lucrative for the Ruias, one of India’s richest families.
A listing in London would give British investors the chance to get involved directly in the Indian mobile phone market, one of the fastest-growing in the world, with operators currently adding more than 20 million customers each month.
A flotation may also offer Vodafone a way of avoiding a potential hurdle, which would arise if Essar decides to exercise its put option and sell. Under India’s foreign ownership laws, Vodafone cannot own the whole of Vodafone Essar and would have to find an Indian partner to take up part of the stake.
Essar already has experience of floating its business units in London. Earlier this year, Essar Energy shot into the FTSE 100 index in the market’s biggest debut since December 2007. Its initial public offering raised £1.3 billion and gave the company, which intends to use the proceeds to build power plants across India, a market capitalization of £5.5 billion.
Essar Energy is chaired by Shashi Ruia, who also controls Essar Group with his brother Ravi. Last month, Shashi’s son, Prashant Ruia, the eldest of the second generation of the Ruia family in the business, admitted that a flotation of the stake in Vodafone Essar, the nation’s second-largest player, could be one route, but stressed “all options are open.”
A spokesman for Vodafone said: “This is a matter for Essar.”
HIGH COURT
News of the discussions with bankers comes as Vodafone prepares to return to the Mumbai high court this week to continue with its appeal against a tax bill following the original Hutchison purchase.
Vodafone paid US$11.2 billion for its 67 percent stake, but Indian tax authorities claim the company is liable to pay as much as US$2.6 billion in tax on its investment in Hutchison Essar, as the deal involved the transfer of an Indian asset.
Last month Vodafone chief executive Vittorio Colao was among executives from British firms who traveled to India with British Prime Minister David Cameron.
In April, Vodafone Essar announced that it had signed up its 100 millionth customer, making it the fifth mobile company in the world to have passed that milestone in a single country.
100 MILLION CUSTOMERS
Two other operators in India have also passed the 100 million milestone: Bharti Airtel and Reliance Communications, and the dramatic growth in mobile phone usage in the country means Vodafone Essar now has close to 110 million customers.
However, the sector has become more competitive after the government allowed several new entrants into the market. As a result of the fierce competition sparked, Vodafone recently wrote £2.3 billion off the value of its Indian business.
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