UK-based telecom giant Vodafone Group has announced it will buy out conglomerate Essar’s stake in their joint venture Vodafone Essar for US$5bn in cash. This move comes after the Essar Group decided to exercise its put option on 22% of Vodafone Essar….
UK-based telecom giant Vodafone Group has announced it will buy out conglomerate Essar’s stake in their joint venture Vodafone Essar for US$5bn in cash.
This move comes after the Essar Group decided to exercise its put option on 22% of Vodafone Essar. Subsequently, Vodafone decided to exercise its call option over the remaining 11% held by Essar in the JV.
In an email to TelecomFinance, a spokesperson for Essar declined to comment on the information. Vodafone did not return phone calls before the press deadline.
This announcement comes a few weeks after ETHL Communications, a subsidiary of conglomerate Essar Group, was reportedly close to selling its 10.97% stake in Vodafone Essar after saying it would exercise its right to prepay outstanding bonds worth Rs42.3bn (US$939m). The bonds, which were reportedly sold in January 2010 in two tranches of Rs21.15bn (US$469m) and are maturing in July and December 2011, were backed by the 10.97% stake in the JV.
Vodafone Group currently owns 67% of the venture, while the rest is held by Essar. According to reports, Vodafone will directly control 75% of the joint venture following completion of the deals. However, under foreign direct investment (FDI) rules, a foreign company is not allowed to own more than 74% of an Indian business, meaning Vodafone will have to sell that 1%.
This deal is expected to put an end to issues between the two companies. In February, Vodafone and Essar respectively appointed Goldman Sachs and Standard Chartered to settle valuation disputes with regards to Vodafone Essar.
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.
In the meantime, Vodafone International is still facing a potential capital gains tax bill for the US$11.2bn it paid for its stake in Hutchinson Essar, before it was renamed Vodafone Essar.
Despite these issues, and that fact that Vodafone Essar might be fined or see some of its licences being cancelled amid India’s 2G scam, Vodafone seems to have chosen to commit to the Indian market given the country’s growth opportunities.
