Vodafone pays $400 mn more to buy Essar's 33% stake

Revising the deal, UK-based Vodafone today agreed to pay over $400 million more to its Indian partner Essar for buying its 33% stake in the joint venture Vodafone-Essar.

With this, Essar closed the deal to sell its 33% stake at $5.46 billion as against $5 billion decided earlier.

Essar had held 22% stake in the joint venture through its Mauritian arm and the remaining 11% through Indian subsidiary.

This means that Vodafone would take a further hit of over $400 million to buy out Essar's stake.

"Under the agreements signed in Port Louis, Mauritius, Vodaofone has made a net payment of $3.32 billion, after deduction of withholding tax of $0.88 billion," Essar said in a statement.

Vodafone and Essar have paid the tax even as both the parties continue to believe that no tax is due on this transfer. It was viewed as prudent to deduct and pay withholding tax on a without prejudice basis and they would claim a refund after following due process.

Vodafone also withdrew its tax dispute petition in the Authority for Advanced Ruling (AAR).

With this the 22% stake works out to be $4.2 billion as against $3.8 billion decided earlier. The shares have been transfered to Vodafone.

Similarly, the value for the 11% stake held by Essar through Essar Communications Holdings Limited has now been revised to $1.26 billion compared to $1.20 billion decided earlier. The transfer of shares would be completed after obtaining all necessary approvals expectedly by February 15, 2012.

Commenting on the deal, which has given over $400 million dollars extra to Ruias, Essar Group Chairman Shashi Ruia said, "We were one of the early entrants in the telecom space in 1995 and we are really pleased that Vodafone-Essar has grown to become one of the premier telecom companies in the country with over 140 million subscribers."

"We have also enjoyed an extremely successful relationship with Vodafone and wish them success in the future."

Both the parties had recently witnesses a prolonged legal battle as Vodafone was against Essar going for reverse listing of its stake, while Ruias had said that it was necessary to arrive at true value of its holdings in the JV.

Vodafone had entered the JV in 2007 after it bought majority stake of Hutchison and has been facing a tax liability of nearly $2.6 billion as the case proceedings are going on.