The CEO of UK telco Vodafone, Vittorio Colao, has said that the company could consider an IPO of its Indian business, according to media reports.
Bloomberg reported today that Colao had said that the listing would only be considered after 2011 and…
The CEO of UK telco Vodafone, Vittorio Colao, has said that the company could consider an IPO of its Indian business, according to media reports.
Bloomberg reported today that Colao had said that the listing would only be considered after 2011 and depended on the local demand for data offerings.
The news comes after Vodafone agreed to acquire Essar’s stake in their Indian telecoms JV, Vodafone Essar, which provides mobile services.
In a statement on 31 March, Vodafone announced that Essar had exercised a put option over a 22% stake in the JV.
Vodafone also said that it had exercised its call option over the remaining 11% stake in the JV that was held by Essar.
Vodafone said it would pay a total of US$5bn for the Essar stake and expects the deal to be completed no later than November.
The acquisition means that Vodafone now faces a potential problem relating to Indian rules concerning investment from foreign companies, known as the Foreign Direct Investment (FDI) rules.
When the acquisition is completed, Vodafone will hold a 75% stake in Vodafone Essar. But FDI rules mean that a foreign company can own no more than 74% of an Indian company.
Colao reportedly said that one option for Vodafone will be to take a similar strategy as it had with its South Africa unit, Vodacom, which was listed in 2009 but remained part of the Vodafone Group.
He also suggested that they could use their current Indian partners more or find new Indian partners.
A Vodafone spokesman told TelecomFinance that the company would remain in compliance with FDI standards.
He said: “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.”
Relationship with Essar and the tax authorities
Colao also reportedly said that any listing of Vodafone’s Indian business would have to come after the resolution of disputes with Vodafone’s local telecoms partner, the Mumbai-based Essar Group, and the Indian tax authorities.
Before the acquisition deal was announced in March, Vodafone had criticised Essar for considering a reverse listing of its own telecoms business because it could affect the value of the JV.
Essar had been planning to merge the unlisted Essar Telecommunications into another part of the Essar Group, India Securities (ISL), which was listed.
ISL responded by saying that Vodafone had no right to oppose this merger since it was not a shareholder in or creditor of either Essar Telecommunications or ISL.
This also led to further complications regarding how to value Essar’s stake in the JV.
The Essar Group is a multinational conglomerate with interests in multiple sectors, including steel, oil, gas and shipping, as well as telecoms.
The dispute with the tax authorities relates to Vodafone’s original acquisition of Hutchison Telecommunications stake in Hutchison Essar, a telecoms JV which subsequently became Vodafone Essar.
It paid US$11.2bn for Hutchison’s stake in June 2007. The JV subsequently began to sell products under the Vodafone brand.
In September 2010, the Bombay High Court ruled that the authorities were allowed to levy a US$2.5bn tax bill from Vodafone International as capital gains tax for the 2007 deal.
Vodafone is now appealing this decision in the Indian Supreme Court.
According to the Bloomberg report yesterday, Colao said that Vodafone were buyers, not sellers, of an asset, and that no buyer in the world can make a capital gain on an asset it has bought.
He reportedly added that if the Indian tax authorities want to go after a certain transaction, they should go after the people who made the money, rather than those who were investing in the country.
