British telecom major Vodafone today paid $1.9 billion (Rs 8,550 crore) to the Ruias-led Essar group as first tranche for buying a 22 per cent stake in their telecom joint venture, Vodafone-Essar.
The first tranche paid today is half the valuation of the 22 per cent stake held by ETHL Communications Mauritus Holdings, which was fixed at $3.8 billion. The rest of the money will come in by November this year, when the entire deal is expected to be closed.
“The first tranche will be paid in dollars as it is being paid to a foreign entity,” said a source from Vodafone. The company’s spokesperson, however, declined to comment on the development. Officials from Vodafone could not be reached immediately for comments.
In total, the Essar group, which holds a 33 per cent stake in Vodafone Essar, will receive $5 billion (Rs 22,500 crore) on the basis of the agreement signed in 2007. The rest 11 per cent stake is held by the Essar Telecommunications Holdings, another company floated by the group. The acquisition of this stake under the call option has run into trouble as Vodafone is expected to get a go-ahead from the Reserve Bank of India.
According to Foreign Exchange Management Act guidelines on foreign direct investment in India, which governs the price of shares transferred by way of sale by a resident to a non-resident, where the shares of an Indian company are in an unlisted entity, “then the value of those shares shall not be less than the fair value to be determined by a Sebi-registered category I merchant banker or a chartered accountant as per the discounted free cash flow method”.
“We have got the valuations from two investment bankers and made all the submissions to RBI,” said an Essar official.
The deal between Vodafone and Essar was signed in 2007 when the former acquired a 67 per cent stake in Hutchinson Essar for $11.2 billion (Rs 50,400 crore). As per the deal, Essar had two options — to sell its stake by May 2011, either via a pre-fixed $5 billion or go for an independent valuation at the fair market value. Essar chose to go with the pre-fixed valuation even as both the companies hired three investment bankers for a pre-fixed valuation.
