Indian conglomerate Essar Group has abandoned plans to sell its stake in Vodafone Essar through an initial public offering (IPO), said people familiar with the matter as quoted by Reuters. Last month, it was reported that Essar had invited bids from…
Indian conglomerate Essar Group has abandoned plans to sell its stake in Vodafone Essar through an initial public offering (IPO), said people familiar with the matter as quoted by Reuters.
Last month, it was reported that Essar had invited bids from banks hoping to advise it on an IPO of its stake in Vodafone Essar, a joint venture between UK mobile company Vodafone and the Indian conglomerate.
Vodafone acquired a controlling stake in Hutchinson Whampoa’s mobile business in India in 2007. Essar was already a shareholder in Hutchison’s unit at the time of the acquisition. Vodafone now controls 67% of the JV and Essar 33%. A potential IPO of Essar’s stake was expected to raise about US$1.5bn, according to the Reuters sources.
Under the terms of the JV, Essar will need to exit its investment by May 2011. But the company cannot sell its entire stake to Vodafone, as Indian regulations forbid a foreign company from holding more than 74% in a local telecoms company.
Vodafone has been faced with several difficulties since acquiring the stake from Hutchinson.
In the most recent episode, the Bombay High Court found Vodafone liable to pay tax on the 2007 acquisition, although the British company had argued that its subsidiaries in Mauritius and the Cayman Islands, where the stake changed hands, were fully functional companies. In an Economic Times report, lawyer Harish Salve was quoted as saying that because India has a double taxation treaty with Mauritius, investments made in India from the country are not subject to tax.
But the Indian Income Tax department said that the deal not only involved transfer of shares but also a transfer of rights such as management control, rights on brands and rights to conduct business in India, allowing the country to claim tax on the acquisition.
Essar and Vodafone could not be reached for comment.
