Vodafone buys 10% in Bharti

British giant pays Rs 6,656 cr to re-enter India.

In India's biggest telecom deal, the world's largest mobile operator, Vodafone, today said it would pick up a 10 per cent stake in Bharti Tele-Ventures for a consideration of $1.5 billion (Rs 6,656 crore).

The deal, which will see the return of the British company to India, will be executed in two lots. Vodafone will buy Warburg Pincus' entire 5.6 per cent stake in Bharti Tele-Ventures, India's largest private telecom player.

It will also take a 9.58 per cent stake in the Mittal family-promoted Bharti Enterprises Ltd, which holds 45.9 per cent in Bharti Tele-Ventures. This will translate into a 4.4 per cent interest in Bharti Tele-Ventures.

Vodafone will acquire the shares, with a face value of Rs 10 each, at Rs 351 ($7.78) a share. The price was at a premium of 7.4 per cent to the five-day average share price of Bharti Tele-Ventures on October 27, the company said in a statement. 
 

BHARTI'S WINDFALL
	Deals	Size ($ mn)	Cost / subscriber ($)
Oct '05	Vodafone-Bharti	1,500	1,000
July '05	Essar-BPL Mobile	1,200	570
Feb '05	AFK Sistema-Aircel*	450	273
Jan '05	Idea-Escotel	261	200
Dec '04	STT/TM-Idea*	390	161
Jun '04	Hutch/Essar-Aircel*	362	400
* The acquisition did not materialise in the absence of regulatory approvals

The deal marks Warburg Pincus' final exit from its 1999 investment in Bharti, having made a total profit of about $1.6 billion on its original $300 million investment

Bharti shares rose 5.5 per cent on the Bombay Stock Exchange today to close at Rs 329.20.

Today's deal was expected to raise the valuations of Indian telecom operators planning to raise equity capital in the near future, analysts said. Reliance Infocomm, Hutch and Idea Cellular are expected to tap the capital markets in the coming months.

Vodafone had exited India in 2003 after selling its 21 per cent stake in Chennai-based RPG Cellular to the C Sivasankaran-promoted Sterling group.

"For a company of Vodafone's stature, a meaningful stake would have been at least 10 per cent. We have given a small stake to Vodafone to ensure the entry of the company into India," Sunil Mittal, chairman and managing director of the Bharti group, said at a press conference.

Mittal, however, added that Bharti Enterprises would remain the single largest shareholder in Bharti Tele-Ventures and that, there were no plans to dilute the stake.

SingTel has a 31 per cent stake in Bharti. In a statement, SingTel Chief Executive Officer Lee Hsien Yang said the company "welcomed Vodafone as a partner to further develop the Indian telecom market". Vodafone, too, will have rights similar to those of the larger Bharti shareholder, Singapore Telecommunications, including board representation.

Vodafone Chief Executive Arun Sarin said the UK-based group planned to further increase its stake in Bharti.

"We would like a greater share over a period of time. We are satisfied with 10 per cent, but if there is an opportunity, we could increase (our stake). The transaction is consistent with Vodafone's strategy of developing a global footprint in growth markets where we can create value for shareholders," Sarin said.

"We expect dividends from this (investment) in the next couple of years. It is still in a high-growth phase but in a year or two, it will be cash flow-positive and at that stage, we will be getting dividends," Sarin said.

Sarin and Mittal met Prime Minister Manmohan Singh earlier in the day and apprised him of the deal.

The announcement comes just days after the government raised the foreign direct investment limit in telecom to 74 per cent from 49 per cent. The guidelines are, however, yet to be notified.

Telecom officials said the acquisition was subject to regulatory approval, and was not likely to take place before the first quarter of 2006. Vodafone would, however, be able to complete the transaction with Warburg Pincus by the end of November, Bharti executives said.

Vodafone, which is the global leader in next-generation telecom services, is expected to play a major role when these services are made available to Indian subscribers after extra spectrum allocation by the government.

"One of the main reasons for choosing Vodafone is its expertise in 3G. We believe our partnership with it will make us the most prepared operator in India to offer 3G services," said Mittal.