Asim, Analjit come clean on Vodafone deal

Asim Ghosh and Analjit Singh have clarified to the government that Vodafone had bought only 52 per cent equity stake in Hutch-Essar and a bundle of "economic interest" in a block of 15 per cent that is held by them.

The bundle of economic interest includes a substantial number of non-convertible preference shares with a redemption value of $3.75 billion.

The clarification comes in response to queries from the finance ministry in the wake of the world's largest mobile services operator, UK's Vodafone, announcing that it is acquiring majority equity in Hutch-Essar, India's fourth largest mobile operator, from Hong Kong-based Hutchison Telecom.

Ghosh, who met officials of the finance ministry and other departments today, clarified that these shares were explicitly excluded from any sector-specific cap on foreign direct investment "� 74 per cent in case of telecommunications "� mandated by the government.

Secondly, Vodafone will also take over substantial loan rights and obligations (they have given loans to Ghosh and Singh to buy the shares) which are secured by, among other things, put, call and subscription options.

In addition, Vodafone will take over the rights on branding and non-compete clauses that are now enjoyed by Hutchison Telecom. However, Ghosh and Singh have clarified that the value of many of these options depends on market conditions, since telecom valuations are notoriously volatile.

Ghosh and Singh have also clarified to the government that the "bundle of rights" to be acquired by Vodafone cannot be exercised without the approval of the regulatory authority and compliance with Indian laws including the Foreign Exchange Management Act and of course the sector-specific cap on FDI.

They have told the finance ministry that the companies through which they hold the shares in Hutch-Essar are beneficially owned by them, with unrestricted voting as well as dividend rights. The two together have a majority holding (62.75 per cent) in Telecom Investments Pvt Ltd, through which they hold shares in Hutchison-Essar, and have three of the five directors on the board. However, they did not have a voting arrangement or understanding with Hutch and will not have any with Vodafone.

Explaining why Vodafone had to announce that it had bought 67 per cent direct and indirect equity and loan interest in Hutch-Essar, Ghosh told the government officials that under the US GAAP rules listed companies had to consolidate their holding, even if they were not subsidiaries, but to which they had given credit support and loans.