Widens its room to decide on disputed put option
Essar group company ETHL Communications Holdings (ECHL) today announced it had opted for an early redemption of bonds it had issued against its 10.97 per cent stake in Vodafone Essar. The company paid around Rs 4,230 crore to buy back rated, listed zero-coupon non-convertible debentures.
Essar has a put option with Vodafone, under which it has the option to sell its 33 per cent stake in Vodafone Essar for $5 billion or part-sale at a fair market value. Essar holds 10.97 per cent in Vodafone through domestic entity ECHL and the balance 22 per cent through overseas entities. The remaining 67 per cent is controlled by Vodafone.
With the put option window closing on May 8, Essar’s decision to pre-pay the bond holders also means the put option right has been vested back with Essar from the bond holders. Hence, Essar’s stake is now free from all encumbrances and it can independently take a decision on the put or part-sale option without being influenced by the bondholders.
Essar had raised this money primarily to finance some of its acquisitions. "The bonds were raised in January 2010 in two series of Rs 2,115 crore each, with maturity dates of July 22 and December 7. Essar has decided to foreclose both the series, with settlement date of March 29 and has deposited the entire outstanding amount in escrow with the account bank for onward payment to bond holders on March 29. Upon settlement of these bonds, the 10.97 per cent equity stake in Vodafone Essar Ltd held by ECHL will be free from all encumbrances," Essar said in a press release.
The group has raised money against the rest of the stake as well, but, it refused to comment on the buyback details of those shares.
According to the deal made during British telecom major Vodafone's acquisition of 67 per cent stake in Hutchison Essar, the joint venture partner between selling Essar, was given an options — sell the stake for a pre-determined Rs 22,500 crore ($5 billion), later increased by Rs 3,400 crore or to determine market value of the stake independently; the route Essar has opted. To achieve a fair value, both the companies have appointed three bankers — UBS, Goldman Sachs and Standard Chartered, to determine the value of the stake. Vodafone has objected to Essar’s plan of reverse-merging Essar Telecommunications Holdings Private Limited (ETHPL) the holding company of ECHL with India securities, which is a listed entity. Essar maintains the objective for reverse merging ETHPL with ISL is to determine the market value of its stake in Vodafone Essar Ltd.
Vodafone has filed an objection with the Madras High Court where the scheme is stated to come up for hearing. In its response, Essar has said that the objections raised by Vodafone are frivolous, untenable and aimed at achieving a collateral purpose of extracting a commercial bargain.
Essar said Vodafone has no locus standi to make a complaint since it was neither a shareholder nor a creditor of the companies involved (ETHL & ISL) in the reverse merger. It said Essar has acted within its full rights under the contract that allows it to exercise an option to discover the fair market value of its shareholding in Vodafone Essar.
Sources, however, say the dispute has emanated from the fact that while Vodafone was keen to buy out Essar out of the company, its partners are willing to sell only a part of their stake at the moment and not get out.
Vodafone Essar is the second largest telecom operator in the country in terms of revenue market share. It has a subscriber base of 127 million, and a market share of 16.52 per cent, after Bharti Airtel and Reliance Communications.
