NEW DELHI (AFP) British telecom giant Vodafone insisted Thursday its 11.1-billion-dollar acquisition of mobile operator Hutchison Essar meets Indian foreign investment rules amid reports the deal faces yet more scrutiny.
Vodafone, the world’s biggest mobile phone company, said it was directly buying only 52 percent of Hutchison Essar while options would give it another 15 percent, still leaving its holding within the 74 perent ceiling.
“We have been maintaining that we have effective 52 percent control,” said Vodafone spokesman V.K. Cherian.
“We have received consistent advice that the structural arrangements for our holding in Hutch is legal and compliant with India’s law, including the 74 percent foreign ownership cap,” Cherian told AFP.
“We are absolutely confident that the deal will receive approval.”
His statement came as India’s law ministry was reported to have suggested further scrutiny of the deal to see whether it really does comply with the 74 percent ownership cap for domestic telecom firms.
Vodafone Group Plc agreed in February to buy Hong Kong-based Hutchison Telecommunications International Ltd’s (HTIL) 67 percent controlling interest in India’s fourth-largest cellular player Hutchison Essar.
The deal is central to Vodafone’s strategy of seeking new markets away from the now saturated developed countries but approval has been dogged by questions about whether it complies with Indian rules.
HTIL holds 52 percent of Hutchison Essar directly and has an “economic interest” in another 15 percent held by Asim Ghosh, Hutchison Essar managing director, and Analjit Singh, chairman of healthcare group Max India.
The balance of 33 percent is held by Indian steel-to-shipping conglomerate Essar but two-thirds of its stake is in turn, controlled through an offshore company for tax reasons, potentially classifying it as foreign.
The Indian media has reported that Hutchison Telecom stood guarantor for loans to Ghosh and Singh. If India decides this reported arrangement made the minority stakes foreign owned, then the 74 percent limit in Hutchison Essar would be breached.
Both Singh and Ghosh say they are the real owners of the stake and are not a front for HTIL.
The Foreign Investment Promotion Board has already deferred clearance of Vodafone’s acquisition of Hutchison Essar twice and has sought additional information on the shareholding structure of the company.
It has not said when it might make a decision on the deal while Vodafone has said it expects to complete the purchase in the second quarter.
Vodafone in a letter to the finance ministry late last month said “under current Indian telecommunications and FDI regulations, the options we were purchasing could not be exercised within the existing shareholder structure if they resulted in a transfer to us or to another non-resident entity.
“However, given that some of the competing bidders in the auction process were Indian enterprises, we were aware that unless we attached adequate value to these options our bid was likely to be unsuccessful,” the company said.
“Obviously we cannot become the real owners (of the 15 percent) stake unless the matter of the FDI is sorted,” said a source close to the transaction.
“We control it through options and in terms of commercial transaction we have paid for that (15 percent stake).”
“They (Ghosh and Singh) cannot sell it to anyone else because we have the options,” the source said. “The competition is making this an issue; Vodafone is only stepping into HTIL’s shoes.”
Vodafone has said it wants to make Hutchison Essar India’s number one cellular operator by 2010 in the country’s fast-growing and competitive telecoms sector.