Despite regulatory uncertainties and the ongoing 2G scandal, some telecom companies have recently reaffirmed their commitments to India. According to Kunal Bajaj, director at Analysys Mason India, “foreign companies remain very much focused on the…
Despite regulatory uncertainties and the ongoing 2G scandal, some telecom companies have recently reaffirmed their commitments to India. According to Kunal Bajaj, director at Analysys Mason India, “foreign companies remain very much focused on the exciting opportunities the Indian market has to offer. In addition, the new telecom policy is expected to send a positive signal to both existing and potential foreign investors.”
Vodafone buys Essar’s stake in JV
In early April, UK-based telecom giant Vodafone Group announced it would pay US$5bn in cash to buy out conglomerate Essar’s stake in their JV Vodafone Essar.
This move comes after the Essar Group decided to exercise its put option on 22% of Vodafone Essar.
Subsequently, Vodafone decided to exercise its call option over the remaining 11% held by Essar.
This announcement came a few weeks after ETHL Communications, a subsidiary of conglomerate Essar Group, was reportedly close to selling its 10.97% stake in Vodafone Essar after saying it would exercise its right to prepay outstanding bonds worth Rs42.3bn (US$939m). The bonds, which were reportedly sold in January 2010 in two tranches of Rs21.15bn (US$469m) and are maturing in July and December 2011, were backed by the 10.97% stake in the JV.
Vodafone Group currently owns 67% of the venture, while the rest is held by Essar. According to reports, Vodafone will directly control 75% of the joint venture following completion of the deals. However, under foreign direct investment (FDI) rules, a foreign company is not allowed to own more than 74% of a local business, meaning Vodafone will have to sell that 1%.
This deal is expected to put an end to issues between the two companies. In February, Vodafone and Essar respectively appointed Goldman Sachs and Standard Chartered to settle valuation disputes with regards to Vodafone Essar.
When the JV was formed in 2007, Essar was given a put option whereby it could either sell its stake to Vodafone for US$5bn or at a market price to be determined by independent assessment. But earlier this year, Vodafone criticised plans by Essar to carry out a reverse listing of one of its wholly-owned telecom business because it could affect the value of their JV.
In the meantime, Vodafone International is still facing a potential capital gains tax bill for the US$11.2bn it paid for its stake in Hutchinson Essar, before it was renamed Vodafone Essar.
Docomo ups TTSL investment
Meanwhile, Japanese telco NTT Docomo has announced it will increase its investment in cellco Tata Teleservices (TTSL), which had said it was considering a rights offering.
In early March, it was reported that TTSL was seeking to raise about US$670m in a rights issue in order to fund its 3G network expansion. Docomo, which owns a 26% stake in the cellco, said in a statement on 31 March that it will participate in the rights issue by investing about Rs8bn (US$179m) in the company.
“Payment of one portion of the funds has been made so far, and the rest of the investment is scheduled to be completed in May,” Docomo stated.
It added: “The additional investment is part of Docomo’s ongoing strategy to expand its business presence and revenue sources in India’s rapidly growing mobile market.” Tata Sons (which has a 60% stake in TTSL) and Singaporean conglomerate Temasek (9.8%) had also been rumoured to be looking to participate in the rights issue, which is not expected to alter the company’s shareholding structure.
SSTL share allotment to Russia
Sistema Shyam Teleservices (SSTL), the telecom JV between Russian operator Sistema and conglomerate the Shyam Group, has completed the allotment of about 547 million shares to the Russian government in return for the US$600m the country invested in the company in December 2010.
The Russian federation now owns 17.14% of SSTL, while Sistema controls 56.68% of it. Together they control just under 74% of the company to comply with the FDI cap. The remaining shares are held by the Shyam group (23.98%) and the public (2.2%).
The company explained that the stand-up capital of the joint venture now stands at Rs31.94bn (US$716m), including the 190 million shares allotted to existing shareholders, such as the Shyam Group. It plans to use the funds to expand its services across India.
In a statement, Vsevolod Rozanov, president and CEO of SSTL, said: “Going forward, the challenge is to further accelerate the proliferation of our telecom services nationally, in sync with our data centric, voice enabled strategy.” This investment was part of a scheme aimed at settling India’s US$1bn outstanding debt with the former Soviet Union by financing investments in India.
SSTL, which operates under the MTS brand, needed a decision on the investment before it can submit an IPO proposal, as it required accurate information about its shareholding structure.
In mid-March, it was reported that SSTL would appoint banks within the next couple of months to advise it on its listing. In an email to TelecomFinance at the time, SSTL confirmed that it is considering appointing bankers for its planned listing but added that it was too early for the company to be more concrete about the process.
A few months ago, Rozanov was also quoted saying that the company plans to complete the commercial roll-out of its mobile phone services across all 22 circles by June this year.
SSTL currently offers services in 18 circles.
Back in January, a spokesperson for SSTL confirmed to TelecomFinance that the company was looking to grow the business and was reviewing all opportunities available, including M&A.
But SSTL is also facing uncertainties regarding its 2G licence in the country in the wake of the scam saga.
