UK-based cellco Vodafone has agreed a deal with India’s Piramal Healthcare for a 5.5% stake sale in its Indian unit Vodafone Essar. The transaction between the celco and India’s second largest pharmaceutical company ensures that Vodafone does not…
UK-based cellco Vodafone has agreed a deal with India’s Piramal Healthcare for a 5.5% stake sale in its Indian unit Vodafone Essar. The transaction between the celco and India’s second largest pharmaceutical company ensures that Vodafone does not violate Indian foreign ownership restrictions rules.
On 1 July, Vodafone agreed to pay US$5.46bn to buy out the 33% stake of conglomerate Essar Group in their mobile operator JV Vodafone Essar. TelecomFinance understands that Vodafone hired Goldman Sachs for the transaction, while Essar was advised by Morgan Stanley, Citigroup, Deutsche Bank and JP Morgan.
Once the acquisition is finalised, Vodafone would have directly held around 75% of Vodafone Essar. But FDI rules state that a foreign company can own no more than 74% of an Indian telco.
Yesterday, on 10 August, Essar therefore agreed to sell a 5.5% stake in the JV to Piramal for US$640m, or 11x EBIDTA. Piramal expects an annual return of between 17% and 20%, it was said in a Piramal conference call today. TelecomFinance has confirmed that the pharmaceutical did not have financial advisers for the transaction, while Vodafone hired HSBC.
A Vodafone statement went on to explain that exit routes for Piramal include a participation in a potential IPO of Vodafone Essar or a sale of its stake to Vodafone. Piramal added that the stake could also be sold to a third party, and that an exit would take place within the next two years.
In late April, Vodafone CEO Vittorio Colao had been quoted saying that the company could consider an IPO of its Indian business. He reportedly added that the listing would only be considered after 2011 and would depend on the local demand for data offerings. Reports also suggest that Vodafone is waiting for a final decision on its tax case.
In early August, the Supreme Court of India began hearing an appeal by Vodafone over a US$2.5bn tax bill demanded by Indian authorities on its US$11.2bn purchase of Hutchison Essar in 2007.
The case, which is expected to run for a few months at least, is being watched carefully worldwide as the outcome could have an impact on foreign investments in the country.
