Vodafone’s US$5 billion buy-out of its Indian partner Essar looks set to run into difficulties, according to Indian press reports this week. According to sources at the Economic Times, Essar is seeking a further US$600 million to US$700 million for its 33 percent holding in Vodafone Essar, India’s third-largest operator. Essar is reportedly looking to invoke a Reserve Bank of India resolution that stipulates a minimum value for Indian shares in privately-held companies. Under this method, Essar’s 11 percent direct stake in the operator is worth US$1.8 billion to US$1.9 billion, compared with the purchase option that pegs it at US$1.2 billion. The agreement between Vodafone and Essar regarding the buyout – agreed when Vodafone entered the market in 2007 – was formed in two parts: one a put or sell option for 22 percent held by the Essar group overseas and the other a call or buy option for Vodafone to buy 11 percent stake the Essar group held in India. “We are mindful of the new Reserve Bank of India guidelines and fully expect the current transaction to comply with them,” said Vodafone group spokesman Simon Gordon.
Meanwhile, Business Standard reports separately that Essar is mulling legal action in order to proceed with its earlier plan to reverse-list one of its group entities, Essar Telecommunications Holdings Pvt. Ltd (ETHPL). ETHPL is an Indian entity which holds Essar’s direct Indian stake in Vodafone Essar. The UK firm protested earlier this year that plans to list the firm was a ploy by Essar to inflate the value of its stake. According to the report, Essar believes its agreement with Vodafone does not necessarily give Vodafone the automatic right to exercise its call option for the remaining 11 percent stake once Essar has exercised its put option for the 22 percent stake.