DoT go-ahead to Vodafone to increase stake in Indian arm

DoT has also noted that investors and company will have to abide by licensing and security conditions

The Department of Telecommunications (DoT has given a ‘no objection’ to the proposal of British telecom giant Vodafone Plc to raise its stake in the Indian entity, subject to approval from Department of Revenue, Department of External Affairs and the Foreign Investment Promotion Board (FIPB) on the valuation of the company.

Vodafone Plc has sought approval from the FIPB to raise its stake in Vodafone India to 100% from 64.38% at present for an inflow of Rs 10,141 crore as foreign direct investment.

According to a recent discussion of the DoT, the ministry has also noted that the investors and the company (licencee) will have to abide by licencing and security conditions as required, and the orders of the Delhi High Court. The security issues will be verified by the Ministry of Home Affairs, it added.

The DoT’s decision came based on the clarifications that Vodafone has submitted after the DoT had asked Vodafone to give break-up of the proposed investment of Rs 10,141 crore that it would invest to raise the stake.

According to the DoT discussion, Vodafone will pay Rs 8900 crore to Piramal Enterprises for its 10.97% stake in Vodafone India, and Rs 1,241 crore will be paid to Analjit Singh to buy his 51% equity in Scorpios Beverages Pvt Ltd.

The remaining 49% of Scorpios Beverages Pvt Ltd is owned by CGP India Investments Ltd, an indirect Mauritian subsidiary of Vodafone International Holdings BV.

According to Vodafone’s FIPB application, CGP will buy the 51% stake of the Analjit Singh in Scorpios Beverages to have 100% equity control. This will enable CGP, an indirect subsidiary of Vodafone International Holdings BV, to have indirect equity stake of 24.65% in Vodafone India through the four subsidiaries of Scorpios Beverages.

Vodafone has, in its explanation to DoT, stated due to the holding company structure through which Analjit Singh and Scorpios Beverages hold an indirect interest in Vodafone India, holding company discounts are required to be applied.

These discounts results in lowering the value of Scorpios Beverages’ indirect interest in Vodafone India, DoT noted in its discussion citing Vodafone’s clarification.

The subsidiaries of Scorpios Beverages which are also being acquired by Vodafone have comparable on account debts, which are also reflected in the Analjit Singh transfer price, it noted.

In November, Business Standard had reported the shareholding structure of Vodafone and how it has kept the valuation of its Indian entity complex.

About 24.65% of Vodafone India is held by Telecom Investments India Pvt Ltd (12.96%), Usha Martin Telematics (6.07%), Omega Telecom Holdings Pvt Ltd (5.11%) and Jaykay Finholding (India) Pvt Ltd (0.51%).

These four companies are indirectly owned and controlled by Scorpios Beverages Pvt Ltd, in which Analjit Singh and Neelu Analjit Singh together have 51% stake.

Vodafone, in its application to FIPB, had said that it will buy the 10.97% stake of Piramal Enterprises in Vodafone India through Prime Metals Ltd, a subsidiary of CGP (thus an indirect subsidiary of Vodafone International Holdings BV).

Prime Metal already has a 1.53% stake in Vodafone India. After the transaction, its stake will increase to 12.5%. If FIPB approves, foreign shareholders will directly own 75.35% stake in Vodafone India and the remaining 24.65% indirectly.