Putting money in Vodafone India has proved a bonanza for many Indian business tycoons, as well as some lucky telecom executives. Ajay Piramal, who last week sold his 11 per cent stake in the company, is not the only Vodafone investor to have made a killing. Others include some of India Inc's who's who - Max India Chairman Analjit Singh, who has had a long association with the company; Kotak Mahindra Group, one of the first to invest in the country's telecom sector; the Hindujas, who sold their telecom venture to Vodafone; BPL Mobile founder Rajeev Chandrasekhar; Rajan Nanda's Escorts group; and Vodafone India's top executive Asim Ghosh, who steered the company and helped make it a force to reckon with.
When Piramal last week offloaded his stake in the Indian company, earlier called Hutchison-Essar, for Rs 8,900 crore to Vodafone Plc, the UK-based parent company, he got a 52 per cent return on his investment. He had bought the stake in two tranches two years earlier for a total of Rs 5,864 crore and replaced Essar to ensure Vodafone Plc's stake in its Indian subsidiary did not breach the 74 per cent foreign direct investment (FDI) cap under the then prevalent regulation for telecom firms. The government last year relaxed the rules to allow foreign telecom companies to hold 100 per cent stake in Indian ventures.
Among key reasons for the telecom company to have multiple Indian partners were regulatory compulsions. New partners had to be brought in to replace the exiting ones, as the company was required to meet the country's FDI norms. Until 2005, India allowed only up to 49 per cent foreign equity in telecom companies, so the parent company needed partners - sometimes more than one to ensure it met the cap but did not lose its say as the biggest stakeholder.
In 2005, the rules were revised and the FDI cap was raised to 74 per cent. The parent company also saw a major restructuring and consolidation of its business in Hutchison-Essar, the Indian arm; there was more leeway to increase stake. And later, as the government last year allowed 100 per cent FDI, the UK's Vodafone Plc got the opportunity to buy out all its Indian investors and make Vodafone India a 100 per cent subsidiary. Stake sale by Piramal and Singh was part of this exercise.
Earlier, the erstwhile Hutchison-Essar had also grown the Indian business through a string of aggressive acquisitions and setting up joint ventures. The Essar group's Ruias had exited the company in April 2011, after 11 years of association, by selling their 33 per cent stake to Vodafone Plc for $5 billion.
Hutchison had in 2000 bought a 49 per cent stake in Essar's Delhi operations, in which the Ruias held a 51 per cent stake. When Hutch sold its 67 per cent stake in 2007 to Vodafone for $11.1 billion, the Ruias decided to stay put and were able to get a settlement of $415 million from Hutchison for not opposing the deal. They gave an assurance of not fighting a legal battle or asserting their right of first refusal in relation to the Vodafone deal.
Max India's Singh, another old partner from the Hutchison days who, like the Ruias, continued his association when Vodafone came into play. He was made the India subsidiary's chairman at a time the company was into a serious tax dispute with the government. When Singh sold his effective 4.5 per cent stake in Vodafone India last week, he made Rs 1,241 crore.
The association of Singh and Hutchison goes back to 1992, when they formed a joint venture to bid for metro mobile licences, opened by the country for the first time. In 1994, they won the licence for Mumbai. Singh sold his 41 per cent stake in the JV in 1998 for Rs 561 crore to a Hutchison venture. Again, he made money in 2005, when he sold 3.16 per cent of his residual stake in Hutchison-Essar, a consolidated company set up after various acquisitions, to Essar for Rs 657 crore. But, Singh had a second coming. He returned in 2006, buying the 8.3 per cent stake of Kotak Mahindra Bank's subsidiaries, associates and promoter group companies in Huchison-Essar for Rs 1,019 crore. Kotak was one of the first to invest in Hutchison-Essar through various transactions.
In 2009, Analjit Singh proposed reducing his effective holding in Vodafone India, through three of his companies - from 7.58 per cent to 3.87 per cent - by selling to Vodafone Plc. The Foreign Investment Promotion Board (FIPB) data showed this would entail an FDI flow of Rs 533 crore.
During the Hutchison-Essar days, the Ruias and Hutch had planned a smart strategy of acquisitions to grow their business. This also benefitted many Indian entrepreneurs who ventured in the telecom space. BPL Mobile founder Rajeev Chandrasekhar was one such entrepreneur. He sold his telecom business to Essar Group, which paid him $1 billion for controlling stake. It bought a 67 per cent stake directly, while the remaining was to be bought over from other shareholders, both foreign and domestic investors. The acquisition was made to merge BPL with Hutchison-Essar. Subsequently, the company's operations in the circles of Maharashtra and Goa, Tamil Nadu and Pondicherry and Kerala were merged with Hutchison-Essar. These were the circles where Hutchison-Essar was not present. The Mumbai operations were also part of the deal but remained independent following a bitter battle between the two partners over terms of the merger.
A similar strategy led the company to strike a deal with the Hindujas, who were among key promoters of Fascel, a company with mobile operations in Gujarat (Hutch did not have its operations in Gujarat). With the government raising the FDI cap in 2005, Hutchison was the next year able to increase its stake in Hutchison-Essar by buying out Hindujas' 5.11 equity stake in Hutchison-Essar for $450 million.
The company also bought the licence of Escotel, a JV in which the Escorts group was a partner, for Punjab. It is not known how much was paid for this, but analysts the sum could have been more than Rs 150 crore, the initial price of the licence.
It was not only businessmen making all the money through investments in Vodafone. Asim Ghosh, who straddled two managements - of Hutch and Vodafone - sold his stake in the company in two tranches. In 2007, when Ghosh and Analjit Singh indirectly bought equity in the company, their shareholding came under scrutiny in the light of the announcement of Hutchison-Essar's deal with Vodafone. There were allegations the two were acting as a front and that their holdings were controlled by Hutchison Telecommunications International. This implied the JV had breached the 74 per cent FDI limit. But, after a lot of to and fro, the deal went through and was eventually cleared. However, in 2009, Ghosh sold part of his equity to Vodafone, bringing down his stake in the company from 4.68 per cent to 2.39 per cent. FIPB documents showed this would lead to an FDI inflow of Rs 330 crore. Two years later, he sold his remaining stake to Singh for an undisclosed sum.