Vodafone in talks with Analjit, others for 1.5% stake sale

Vodafone Plc, the world’s largest mobile company, today said it was in talks with its partner Analjit Singh and other investors to decide on who would pick up the 1.5 per cent stake in its Indian venture.

With Vodafone buying out Essar’s 33 per cent stake for $5 billion, it will need an Indian investor to pick up this stake, else it would breach the foreign direct investment (FDI) cap of 74 per cent in the telecom sector. Vodafone has already paid $1.9 billion to the Essar group as part of its first tranche.

Speaking to Business Standard, Vodafone Plc Group Chief Financial Officer Andy Halford said, “The Essar deal will be finalised in nine months. We are talking to Analjit Singh, who is already a partner, and have got interest from a number of parties. We can give the stake to an existing investor or even a new one.” Analjit Singh holds 6.2 per cent stake in Vodafone Essar, while the rest is being held by IDFC.

While picking up Hutchinson’s stake in Hutch Essar four years ago, Vodafone and the Ruias entered into an agreement providing the latter an option to divest all their shares for, at least, $5 billion by May 2011.

The company is also seeking approval from the Advance Tax Tribunal, on whether it has to withhold any tax amount in the deal with Essar. The final view is expected to be out in the next few weeks.

Halford said the telecom major is ready to sell its 4.39 per cent stake in Bharti Airtel on condition the promoters are willing to buy back the shares. “If we get a decent offer from Bharti we will sell it, otherwise it is not a high priority.”

Asked if it could give the stake to any other investor he said the way it was held, it was unlikely that anyone would buy it.

Vodafone had bought a 10 per cent stake in Bharti in 2005, both directly and indirectly, for $1.5 billion. But it sold half of its stake in Bharti after it acquired Hutch’s stake in India. It now holds 4.39 per cent indirectly through unlisted Bharti Telecom.

Vodafone Plc also said it would go in for an initial public offer only in 2012 after the contentious tax issue, under which it has a liability of $2.5 billion to be paid to the country’s income tax department, is finally decided. The hearing in the Supreme Court is scheduled in mid-July.

Halford said the company had already invested $23 billion in the country, including $12 billion for acquisition of the 67 per cent stake of Hutchison, and would now pay $5 billion to Essar for buying its stake. Besides, it has already invested $6 billion to roll out operations and acquire spectrum in the last four years.

“Last year, we invested $1.5 billion and added 40 million customers. So, the $ 2.5 billion tax liability could mean investment to add a lot of customers. We are committed to the business here, but there are limits to ones generosity. We have not taken any dividend from India till now,” he said.

The deal with Hutchinson did not have any agreement which said liability after the deal would be taken over by the Hong Kong company. “We (Hutch and Vodafone) looked at the issue of paying tax and concluded no tax would be payable on the transaction. At hindsight, we definitely would have liked it to be there. We have 50 years of experience;we did not think it would become an issue.”

The global telecom major, which is present in about 30 countries across the world, has recently added India to its portfolio, beside the US and Europe. Vodafone saw its Indian operations turn profitable for the last financial year, for the first time since it entered here.