Nearly two years after it sold its Indian telecom business to British giant Vodafone, Hong Kong- based Hutchison Telecom International has warned of possible tax and other obligatory payments in connection with the deal.
"We may be subject to claims or have to make payments as a result of warranty, indemnity or other obligations assumed in connection with the sale of interests relating to CGP Investments Holdings to a subsidiary of Vodafone Group Plc, or Vodafone, in May 2007," the US-listed HTIL said in a regulatory filing here.
Under the deal, HTIL had sold its majority 52 per cent stake, held through Cayman Island-based CGP Investments Holdings, in Indian telecom venture Hutch-Essar to Vodafone for over $11 billion. Hutch-Essar was later renamed as Vodafone Essar.
HTIL, in its annual report filing with the Securities and Exchange Commission (SEC), further said that "the Indian tax authorities may consider the gain arising from this sale to be taxable in India.
"The Indian tax authorities have initiated an investigation into Vodafone's obligations to withhold tax from the acquisition proceeds. Vodafone disputed the jurisdiction of the Indian tax authorities in this matter."
"The Indian Supreme Court ruled, in proceedings initiated by Vodafone, that the question of jurisdiction should be determined by the Indian tax authorities in the first instance, and in the event the authorities make a determination against Vodafone, it may appeal to the Indian High Court," HTIL said.
The Hong Kong-based firm, which is part of billionaire Li Ka Singh-led Hutchison group, said that it has "received legal advice and believe that the sale is not taxable in India, and therefore, no Indian tax is payable by us."
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"Accordingly, we have not provided for any claims or Indian tax liabilities in connection with the sale. However, there can be no assurance what the final outcome will be. If we eventually make any such payments or suffer any Indian tax on this sale, it may have a material adverse effect on our financial position and results of operations," it noted.
HTIL completed the sale in May 2007 to Vodafone for cash consideration of $11,074 million before costs, expenses and interest payable by Vodafone, plus the assumption of $2 billion of net debt.
HTIL said that it also entered into a supplemental deed with Vodafone, under which Vodafone was permitted to retain 352 million from the sale price to "apply against certain specified liabilities that Vodafone might incur in connection with the interests that it had effectively acquired during a period of up to 10 years following the date of completion of the sale."
"Considering the terms surrounding the retention and release of the amount retained by Vodafone, our board of directors has decided to make a full provision against recovery of any part of the amount retained by Vodafone," HTIL said.
India has been one of the main growth drivers for Vodafone ever since the British company entered the country through this deal, which was the largest in-bound M&A transaction involving an Indian entity at that time.
Vodafone last month reported a 16.7 per cent jump in its full year profit for FY08-09, led helped by robust growth in emerging markets, mainly India.