The Vodafone Group has paid its Indian partner Essar $1.9 billion, the first tranche of its $5 billion deal, to buy out Ruias’ entire 33 per cent stake in Vodafone Essar.
The operator will pay the next installment of $1.9 billion in November 2011. Vodafone purchased 67 per cent interest in the Indian operator from Hutchison Whampoa and two Indian shareholders Analjit Singh and Ashim Ghosh in 2007 in a $11-billion deal. At that time, Essar and Vodafone agreed that the former could sell its interest in the company to the latter for $5 billion till May 2011.
The agreement was formed in two parts; one a put or sell option for 22 per cent held by the Essar group overseas and the other a call or buy option for Vodafone to buy 11 per cent stake the Essar group held in India. Essar had the first right to exercise its option, but if it tendered its entire 22 per cent, Vodafone’s option would become valid. In April 11, Vodafone Group chief executive Vittorio Colao ruled out paying Essar Group more than $5 billion for buying out its 33 per cent stake.
It is believed that Vodafone’s, third tranche or final round of payments to the tune of $1.2 complete the deal would depend on RBI directions. This is because Essar is of the view that its 11 per cent (of its 33 per cent stake) that is held in India is subject to the Reserve Bank regulations.
The April 2010 RBI resolution mandates that Indian shares in privately-held firms should be valued under the discounted cash flow method. Under this method, Essar’s 11 per cent stake in Vodafone Essar is worth $1.7-1.8 billion, compared with the purchase option that pegs it at $1.2 billion.
