Vodafone has told the Securities and Exchange Board of India (SEBI) and the Bombay Stock Exchange (BSE) that it was not informed about its partner Essar’s plans to transfer 11 per cent stake to another listed group firm, according to news reports.
In a statement, the company said that it has written to both BSE and SEBI expressing its concerns regarding the reverse listing of Essar Telecommunications Holdings Private Limited (which owns an indirect 11 per cent stake in Vodafone Essar) into India Securities Limited and has requested a thorough scrutiny. In 2007, Vodafone had acquired nearly 67 per cent stake in the company, while Essar has a little over 33 per cent equity in the joint venture.
India Securities Limited (ISL) is a group firm of Essar and is listed on the bourses. Transfer of 11 per cent stake held by Essar Telecommunications Holdings to ISL will allow shareholders of ISL to participate in Vodafone Essar.
If carried through, Essar would know the fair (market) value of its 33.02 per cent stake, for which the company has the right to exercise the put option, a contract that gives the seller the right to sell a specified quantity of securities at an agreed price within a specified time period.
However, according to Vodafone, there was no disclosure to ISL?s shareholders on Vodafone Essar. Thus, the investors in ISL have no basis on which to form a valuation judgement. Vodafone also said that Essar Telecommunications’s wholly-owned subsidiary has stated in its information memorandum, dated September 2009 and January 2010 that it would use the proceeds from the bonds secured against Essar’s put option to invest in the coal, steel and refining sectors.
Vodafone also pointed out that it was not clear what assets or liabilities ISL would have following the possible exercise of the underwritten put option or the fair market value option issued to Essar in 2007. Its statement also said that ISL was an illiquid vehicle and post the merger, over 95 per cent of shares would be controlled by the Essar Group and two other shareholders. Accordingly, small amounts of buying or selling could distort ISL’s share price.
It stated that Vodafone did not wish a company in which it holds a majority interest to become the subject of a false market. The company is also concerned that the value of ISL could be misinterpreted as a fair market value of Vodafone Essar.
