The Essar Group has approached the Reserve Bank of India seeking its nod to sell 10.97 per cent equity in Vodafone Essar for $1.2 billion.
It is believed that the Essar Group has submitted the application, along with the discounted cash flow (DCF) valuations from Standard Chartered Bank and JM Financial.
Standard Chartered is said to have valued the Vodafone Essar Limited (VEL) equity at Rs 1,701 a share while JM Financial pegged it at Rs 1,693 a share.
Going by this, it is believed that Vodafone would either have to pay $500 million more to buy the shares directly or RBI would have to find an Indian buyer to front the transaction.
RBI’s nod is necessary due to a change in RBI pricing guidelines for sale of equity shares by an Indian entity to a non-resident (foreign) entity. Under this guideline, issued in April 2010, any transfer of shares of an unlisted company by resident to non-resident entities cannot be done at a price lower than the fair value of the shares calculated using the DCF method by either a category one merchant bank or a chartered accountant.
This comes after Vodafone and Essar exercised their respective call and put options with regard to Essar’s stake in the joint venture which was pegged at $5 billion with a clause that the parties could adopt methods to get fair valuations at later stage.
