The Indian Foreign Investment Promotion Board (FIPB) has reportedly deferred its decision on a US$5.46bn deal, which will see British telco Vodafone buying out the stake of Essar Group in their JV, the mobile operator Vodafone Essar.
More specifically,…
The Indian Foreign Investment Promotion Board (FIPB) has reportedly deferred its decision on a US$5.46bn deal, which will see British telco Vodafone buying out the stake of Essar Group in their JV, the mobile operator Vodafone Essar.
More specifically, the FIPB is considering a request from Mauritius-based Prime Metals, an indirect subsidiary of Vodafone International, to buy a 5.48% stake in Vodafone Essar, according to reports.
But a senior Finance Ministry official was quoted saying that no decision has been taken yet. The deal also reportedly needs to be approved by the Cabinet Committee on Economic Affairs (CCEA).
The main concerns surrounding this deal relates to Indian rules concerning investment from foreign companies, known as the Foreign Direct Investment (FDI) rules.
When the acquisition is completed, Vodafone will hold around 75% of Vodafone Essar. But FDI rules mean that a foreign company can own no more than 74% of an Indian company.
Therefore, Vodafone and Essar said they expected that 1.35% of the shares in the JV would be transferred to an Indian investor to ensure Vodafone still complied with FDI rules.
Earlier this month, Vodafone agreed to pay US$5.46bn for the Essar stake, which represents an increase of US$460m on the original transaction fee announced by Vodafone in March.
The increase is due in part to Vodafone’s decision to pay withholding tax of US$0.88bn on the transaction.
The acquisition involves Vodafone acquiring Essar’s 22% stake in the JV through a put option. The British telco has paid US$3.32bn for this stake in two instalments, one in June and one on 1 July.
Vodafone is also exercising a call option to acquire Essar’s other 11% stake for US$1.26bn. This payment will be made in February 2012.
