Vodafone buys Essar's stake for $5 bn

London, Mar 31: Vodafone, the world's largest mobile operator by revenue, announced that it will be be paying USD 5 billion in cash and buy out the stake of the Essar Group from their Indian joint venture. This will be the end of their fractious relationship.

The company's India division has been facing problems since its entry in the fiercely competitive market in 2007. India is the world's second biggest market for mobile services. And mobile is among the fastest growing industry.

In 2007, Vodafone had granted options to Essar under which the conglomerate could sell its entire stake for $5bn, or it can sell parts of the 33% holdings under the independently appraised fair market value.

Vodafone has faced a string of challenges from high spectrum costs, dispute on tax with the government and difficult relationship with its main partner. Last year Vodafone took a $3.3 billion charge for its Indian unit. It cited “intense price competition."

In 2010, bankers had valued the Vodafone's Indian unit between $13 billion and $18 billion, as Essar was considering an initial public offering for the venture, said one person familiar with the matter. That should have valued Essar"s current stake between $4.3 billion to $6 billion.

In 2007, Vodafone bought 67 per cent stake in Hutchison Essar for over $11 billion taking the place of Hong Kong-based Hutchison Whampoa group. They are the biggest foreign investor in the telecommunication sphere.

With this buyout, Vodafone's stake in the company will go above the stipulated level of 74% which is allowed to a foreign entity in the telecom sector. It will be seen how the group manages this regulatory policy.One way around this problem would bring an IPO and list it on the stock market. The other can be to scout for a local partner.

OneIndia News