Vodafone is to pay US$5 billion to buy the 33 percent stake held in its Indian mobile arm by local partner, Essar, reports the Financial Times. The UK mobile giant said today that it is exercising put and call options to acquire the stake which it put in place when it first entered the market four years ago. Under that agreement, Vodafone granted options to Essar that would enable the conglomerate to sell its entire stake for US$5 billion, or to dispose of part of the 33 percent shareholding at an independently appraised fair market value. However, as the deadline for that transaction drew closer, relations between the two partners became strained. In January, Vodafone objected to Essar’s plans to place part of its 33 percent stake in India Securities, a small public company, which the UK firm said was a ploy by Essar to inflate the value of its stake. However, the US$5 billion price tag announced today is in line with the original agreement. Vodafone said the transaction should be completed in November, adding that the group’s net debt had already factored in the payment.
In 2007 Vodafone bought a 67 percent controlling interest in what was then called Hutchison Essar for US$10.9 billion, renaming it Vodafone Essar. While the deal allowed Vodafone to enter the world’s second-largest mobile market, it has been plagued by numerous problems in the country, including a disputed US$2.5 billion tax bill relating to the original Hutchison transaction. India’s fierce mobile pricing war also led to Vodafone booking a £2.3 billion writedown on the value of its Indian unit last year. According to the Financial Times, Vodafone currently owns 42 percent of Vodafone Essar directly, with a further 25 percent held by its Indian partners. Indian rules bar Vodafone from owning more than 74 percent, and the UK group said it would maintain compliance after the transaction with Essar is completed. This would mean either Vodafone’s Indian partners increasing their shareholding, or selling a stake in the unit via an IPO.