Vodafone, Essar appoint I-banks to assess stake value

British telecom major Vodafone and Indian business group Essar have appointed investment bankers to assess the value of the latter’s 33 per cent stake in Vodafone-Essar, the second largest telecom operator in the country.

While Essar has appointed Standard Chartered, Vodafone appointed Goldman Sachs, said banking sources.

Both companies are in talks for the third independent investment banker, to complete the process of assessing the fair value of Essar’s stake. An average of the value given by each of these bankers, will be the amount that would be paid to Essar.

According to the deal signed in 2007, when Vodafone acquired 67 per cent stake in the company, Essar was given a put option wherein it could either sell its stake to Vodafone at the pre-determined $5 billion or at a market price that will be determined by independent assessment. The deadline for the put option ends in May.

Banking sources also said the Essar group has taken a loan of $4.5 billion against shares held in Vodafone Essar, and after its put option is exercised, one of its first obligations would be to repay the loan. Sources said the owners of Essar, the Ruias, would like to retain 11 per cent stake in the company, which is held by one of its subsidiaries — Essar Telecom Holdings (ETHPL).

Essar group holds its 33 per cent stake through two companies, 11 per cent through ETHPL and 22 per cent by Essar Telecom.

Last month, both Vodafone and Essar were engaged in a war of words after Essar proposed a reverse merger of its stake in ETHPL with the Indian Securities (ISL), which is listed on the stock exchanges. Vodafone called this a violation of insider trading rules and accused Essar of trying to inflate the value of its stock. Essar on the other hand, said it was trying to assess the value of its shares in a transparent manner.

While Essar refused to comment on the appointment of an investment banker, it reiterated its stance saying it plans to go ahead with the proposed merger. “There is no change in our plans to merge Essar Telecommunications Holdings with India Securities. As we have stated before, the investment banks are free to choose whether or not to consider the listed value of ISL in their fair value determination,” the company said in an e-mailed statement.