Putting an end to months of debate, he Foreign Investment Promotion Board (FIPB) has finally cleared Vodafone’s acquisition of 52 per cent stake in Hutchison Essar Limited (HEL) from Hong Kong-based Hutchison Telecom International Limited (HTIL). The finance minister and the prime minister have also given their approval, paving the way for the entry of the world’s largest telecom carrier into the country.
The FIPB, which is the nodal agency for clearing foreign direct investment (FDI) proposals, noted that Vodafone’s acquisition complied with FDI norms since the 15 per cent minority shareholding in HEL was not owned or controlled by any foreign entity.
The need for approvals from different government departments arose in the wake of doubts being cast over the shareholding pattern of HEL. This included a public interest litigation filed by Telecom Watchdog, an NGO. The key point of issue was on account of the fact that HEL’s other shareholder, the Essar Group, holds 22 per cent of its 33 per cent stake overseas, which qualifies as FDI.With Vodafone acquiring 52 per cent direct shareholding, the company would hit the 74 per cent FDI ceiling. However, a further 15 per cent stake is held by HEL’s managing director Asim Ghosh, Max India promoter Analjit Singh, and IDFC, held on behalf of HTIL, the foreign promoter which provided the bank guarantees. The question was whether this 15 per cent stake comprised a foreign holding, in which case the FDI limit would be breached, violating the country’s foreign exchange laws. Vodafone’s application with FIPB thus came under the scanner of the RBI, the finance ministry and the law ministry.
Setting matters at rest, Ajay Dua, secretary, Department of Industrial Policy and Promotion, said that the deal had been cleared without any conditions. The FIPB, however, clarified that the company would have to conform to Press Note 3 of 2007, which required it to comply with the 74 per cent limit on FDI in telecom. Moreover, Dua stated that the “Indian shareholding must remain Indian” and cannot be transferred to a foreign entity without government approval. This means that the 15 per cent stake in question cannot be sold to Vodafone without government clearance.
For now, the FIPB approval has cleared the decks for the largest phone company in the world to enter the country.The clearance came shortly after the law ministry and RBI gave the acquisition a clean chit. The British prime minister too wrote to the Indian prime minister, urging him to look into the matter.
With all that in the past, Vodafone is now all set to begin its Indian innings. It has paid approximately $200 million less for the stake, $10.9 billion instead of the originally envisaged $11.1 billion. This is because it has agreed to bear the full cost of exercising options over the 15 per cent stake held by Singh, Ghosh and IDFC in HEL. Commenting on the transaction, Arun Sarin, chief executive of Vodafone, said: “I am delighted that, having secured all the necessary regulatory approvals, we are now able to complete this important transaction and move onto the process of integration. India is a tremendously exciting, fast-moving market, and I am confident that the Hutchison Essar business will make a major contribution to the Vodafone Group in the coming years.”
