Vodafone gives way for consolidation in Indian mkt

New Delhi, May 5: With British telecom giant, Vodafone finally clinching the deal to acquire Hutch-Essar after several months of wranglings, the stage is set for more such mega investments in the country which is the world's fastest growing telecom market poised for more such consolidations.

Finance Minister P Chidamabaram yesterday approved Vodafone's application to invest in mobile phone operator Hutch-Essar, following the clearance by FIPB last week.

The controversial deal since the time Vodafone inked agreement with Essar in February last, after getting a clean chit from the Finance Ministry will pave way for the world's largest mobile firm by revenue to start operations in India.

The deal met with several obstacles ever since it was formally announced in February. The bone of contention was the 12.26 per cent stake held by Max India chief Analjit Singh and Hutch Essar Managing Director Asim Ghosh.

So much so that the transaction was deferred thrice by the FIPB amid allegations, right from the Reserve Bank of India (RBI) to government officials, that the stake held by Singh, Ghosh and IDFC violated FDI and FEMA norms.

But, the deal was finally approved last week, first by the Law Ministry and then by FIPB.

Vodafone had bought the stake from Hong Kong's Hutchison Telecom International for 11.08 billion dollar in February this year.

Indian partner Essar holds 33 per cent stake in HEL. Of this, 22 per cent is through companies registered overseas.

Of the remaining 67 per cent stake, 52 per cent was earlier directly held by HTIL and the balance controlled by it through entities belonging to HEL managing director Asim Ghosh, Max India chief Analjit Singh and IDFC.

India's FDI policy permits only 74 per cent foreign ownership in telecom companies.

Among the first process of the much-awaited transformation would be to constitute a 12-member Board and change the name of the company to Vodafone Essar. Still, its not all over yet, as Vodafone will have to ward off the threat from a PIL filed by an NGO called Telecom Watchdog in the Delhi High Court.

Vodafone earlier said that the new company would reach the country's top slot in next three years.

''Essar is our natural ally. We will together make this newly made entity bigger and stronger and reach the top slot by 2010,'' Vodafone Chief Executive Officer Arun Sarin had said.

Under the terms of partnership, Vodafone will have operational control of Vodafone Essar and Essar will have rights consistent with its shareholding, including proportionate Board represention, Mr Sarin said.

''Essar Chief Ravi Ruia has agreed to hold the chairmanship of the company who will take it to the next level,'' said Mr Sarin, who will take the charge of Vice Chairman of the firm.

Ranbaxy's Analjit Singh, who along with Hutchison Essar Chief Executive Officer Asim Ghosh has 15 per cent of the company, will also be a board member. Calling it a win-win situation for both the partners, he had said Vodafone would accelerate the capital expenditure for the growing Indian market, especially into the largely untapped rural market.

Reacting on the development Telecom Minister Dayanidhi Maran had said, ''Its (Vodafone's) entry into the Indian market will bring in more professionalism and value in the telecom sector becuase of its global experience.'' ''They will spur more competition in the Indian market and customers will get more benefits,'' he added.

Vodafone Essar will offer low-cost mobile handsets and innovative services like money transfer service to the fastest growing mobile market in the world.

''This is a signal of the potential of the Indian market to the world,'' Mr Sarin had said.

Essar Chief Ravi Ruia said, ''Vodafone will bring all the services to India. I am closely working with Sarin.'' Essar will have certain liquidity rights in the third and fourth years of completion, and subject to regulatory requirements, an option to sell its 33 per cent shareholding in Vodafone Essar to Vodafone for five billion dollars.

It will also have an option to sell between one billion dollars and five billion dollars worth of Vodafone Essar shares to Vodafone at an independently appraised fair market trading value.

The company expects to have 100 million subscribers in India and revenues to go up.

The deal, Vodafone's biggest since its record-breaking 231 billion dollar (180 billion-euro) purchase of Germany's Mannesmann in 2000, saw the company again fight off with Reliance Communications, Hinduja and Essar groups.

UNI