Vittorio Colao, the CEO of UK-based cellco Vodafone Group, has said his company could consider an IPO of its Indian business.
He was quoted saying that the listing would only be considered after 2011, and that it depended on the local demand for data…
Vittorio Colao, the CEO of UK-based cellco Vodafone Group, has said his company could consider an IPO of its Indian business.
He was quoted saying that the listing would only be considered after 2011, and that it depended on the local demand for data offerings.
One option would be for Vodafone to apply a strategy similar to what it did with its South Africa unit, Vodacom.
This business was listed in 2009 but remained part of the Vodafone Group. Colao also suggested that the company could work with its current Indian partners or find new local partners.
On 31 March, Vodafone agreed to pay US$5bn for Indian conglomerate Essar Group’s 22% stake in their Indian mobile JV, Vodafone Essar, via a put option. Vodafone also said that it had exercised its call option over Essar’s remaining 11% stake.
Following completion of the deal, Vodafone will directly control about 75% of the joint venture. However, under foreign direct investment (FDI) rules, a foreign company is not allowed to own more than 74% of a local business.
A Vodafone spokesman told TelecomFinance that the company would remain in compliance with FDI standards.
“We will only need to dispose of around 1.3/1.4% to [an] Indian resident and we envisage that will be done before November this year. An IPO is not necessarily required for this purpose but could be a consideration in the future,” he explained.
Resolutions must come first
Colao also said that any listing would have to come after the resolution of disputes with Essar Group and tax authorities.
Essar Group is reportedly insisting that its 33% stake in Vodafone Essar is worth more than the US$5bn buyout offer. But an Essar statement, released on 8 April, read: “Essar fully intends to honour all its rights and obligations under the various agreements with Vodafone and also expects Vodafone to do the same.
This will be done in accordance with all applicable laws and regulatory approvals.” 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.
The dispute with the tax authorities relates to Vodafone’s original acquisition of Hutchison Telecommunications stake in Hutchison Essar for US$11.2bn in June 2007. Hutchison Essar, a telecoms JV, subsequently became Vodafone Essar.
In September 2010, the Bombay High Court ruled that the authorities were allowed to levy a US$2.5bn capital gains tax bill from Vodafone International relating to the 2007 deal. Vodafone is now appealing this decision in the Indian Supreme Court.
Colao has argued that as a buyer rather than a seller, Vodafone could not make a capital gain.
Seeks regulatory clarity
Vodafone Essar has sent a letter to telecom minister Kapil Sibal asking him to ensure that the new telecom policy will help create a fair and transparent regulatory environment. More specifically, the company is seeking clarifications on spectrum allocation and usage charges.
Details of the new policy are yet to be disclosed, but the government said it has drafted a strategic plan covering spectrum sharing, M&A and the introduction of MVNOs.
Recently, Sibal was quoted saying regulation should be relaxed to pave the way for consolidation. Nevertheless, he emphasised that there should still be a minimum of six operators to each telecoms zone, including the state operator.
He also said that issues surrounding the new policy would be solved by August, giving ministry officials time to meet with industry leaders.
