Essar demands equal powers

To invoke 'right of first refusal' if Vodafone turns down proposal.

The unease in the Vodafone-Essar relationship became more pronounced today, with the Indian company saying it will offer to purchase Hutchison Telecommunications International Ltd's (HTIL's) 67 per cent stake in Hutchison Essar if Vodafone does not give it equal management control.

Essar holds one-third equity in Hutchison Essar. Vikash Saraf, CEO, Essar Teleholdings, told Business Standard, "The Essar Group wants to continue in Hutchison Essar, in which it has created tremendous value with its partner HTIL over the past six years."

Essar did not want to continue in the company as a mere financial investor. "If Vodafone intends to offer us equal partnership in the company, we have no issue. Otherwise, we will exercise our right of first refusal and buy HTIL's stake at the same price as Vodafone's," he added.

Vodafone agreed to pay $11.1 billion for HTIL's stake in Hutchison Essar, putting the enterprise value of the company at $18.8 billion.

Essar Teleholdings is the holding company of the group's telecom business and holds 11 per cent in Hutchison Essar. The group's foreign entities hold 22 per cent. Saraf is on the Hutchison Essar board.

Sources close to the development said the Ruias had made it clear to Vodafone CEO Arun Sarin that they reserved the right to seek legal recourse under their right of first refusal, laid out in the shareholders' agreement with Hutchison.

Any such move by the Ruias could delay a new agreement between Vodafone and Essar. The right of first refusal has been the bone of contention between HTIL and Essar.

Sources said that while the Ruias had told Sarin they wanted to stay invested and were open to increasing their stake, they were awaiting official documentation of Hutchison's sale of its 67 per cent stake to Vodafone.

Saraf said Essar added 14 territories while Hutchison brought in three. Both jointly added six regions. Hutchison Essar has 23 million subscribers.

He said the Essar Group and HTIL had enjoyed equal say in strategic management and long-term decisions taken by the company. The chairman of the Hutchison Essar board was selected by rotation.

The Essar Group has four representatives on the 12-member Hutchison Essar board while Hutch has eight members. But important decisions were taken by consensus.

Essar sources did not want to indicate a time-frame for these issues to be resolved. "We are in no hurry. We have got commitments from financial institutions to match Vodafone's offer," they added.

They added that the valuation of Hutchison Essar had gone up to $18.8 billion from $800 million over the past seven years. "Had Essar Group not been a good partner, this would have not been possible," they added.