A change in the ownership status of finance company IDFC may impact Vodafone Group Plc?s plans in India.
Omega, a company in which IDFC holds 61.6 per cent stake, has held a 5.11 per cent stake in Vodafone Essar since 2007, the year Vodafone bought into the Indian mobile operator.
The arrangement helped Vodafone, giving it sufficient headroom to comply with India’s foreign investment limit of 74 per cent in an Indian firm.
While IDFC has been considered an Indian company, in September 2010, foreign institutional investors (FIIs) increased their holdings to more than 50 per cent in the firm, changing its status to a foreign company under India’s new FDI norms. This change in status will mean that IDFC and all its subsidiaries will now be labeled foreign, complicating Vodafone’s efforts in the country.
Under the new FDI norms, which treat investments by FIIs, NRIs and overseas corporate bodies also as foreign, the 5.11 per cent held by Omega in Vodafone Essar will have to be reclassified as foreign.
It is believed that once Vodafone completes the acquisition of the Essar Group?s stake, it will have to sell a minimum of 6.46 per cent stake to an Indian shareholder or bring in strategic Indian investors in Omega. Moreover, a 19.54 per cent stake in Vodafone Essar is held by Telecom Investment India, a company controlled by Analjit Singh and former Vodafone Essar CEO Asim Ghosh.
Vodafone has bought the voting rights for the stake in Vodafone Essar from Singh and Ghosh, although the actual stake is still indirectly held by them.
Meanwhile, Vodafone has said that only 1.35 per cent of Vodafone Essar Limited will be sold to Indian investors. Vodafone has also kept open the possibility of floating an IPO.
