There could be trouble ahead for Vodafone’s proposed buyout of joint venture partner Essar, as the Indian operator is demanding more for its 33% stake than the pre-agreed fee of US$5 billion – allegedly US$600 to US$700 million.
Essar’s objection is based on a Reserve Bank of India resolution which dictates that Indian shares in privately-owned firms must hold a minimum value. The firm holds a direct stake of 11% in Vodafone Essar, which with this resolution would be valued at US$1.8 billion to US$1.9 billion – however, the purchase option values the stake at US$1.2 billion.
The terms of a potential buyout were pre-agreed in 2007, when Vodafone first made inroads into India. The stake is split into two parts – the 11% which is held in India, and the 22% held abroad – with a call or buy option for the first part, and a put or sell option for the second. Vodafone spokesman Simon Gordon said "we are mindful of the new Reserve Bank of India guidelines and fully expect the current transaction to comply with them."
The issue of the stake’s value joins another ongoing dispute between Vodafone and Essar involving the latter’s goal of reverse-listing one of its holdings, Essar Telecommunications Holdings Pvt. Ltd (ETHPL). Essar’s direct stake in the joint venture is held by this entity, and Vodafone has accused the proposed listing of the body as an obvious attempt to increase the stake’s value.
