The Bharti group has decided to buy out Vodafone’s 5.6 per cent direct holding in Bharti Airtel for $1.6 billion (Rs 6,500 crore) in two tranches ending November 2008. Vodafone had acquired direct and indirect stakes adding up to 10 per cent in Bharti Airtel in October 2005 for Rs. 6,700 crore.
The stake will be sold for far less than what it would have fetched in the open market. Bharti Airtel’s present market capitalisation at Rs. 1,57,605 crore ($39 billion) is 36 per cent higher than the $28 billion valuation of the company at the time of the Vodafone purchase. At current prices, the 5.6 per cent stake is valued at $2.2 billion. Moreover, block deals command a premium over the underlying market price.
Vodafone, through Vodafone International Holdings BV, had bought the 5.6 per cent Bharti Airtel stake from Warburg Pincus for around Rs. 3,700 crore. Additionally, Vodafone subscribed to fresh shares in the holding company, Bharti Enterprises, giving it a beneficial stake of 4.4 per cent in Bharti Airtel for about Rs. 3,000 crore.
Vodafone's exit from Bharti Airtel was imminent after the British mobile giant acquired a majority stake in Hutch-Essar for $11.9 billion. Under existing guidelines on telecommunications, promoters are not allowed to own 10 per cent or more in two telecom companies operating in a circle.
“In conjunction with the acquisition of Hutch-Essar, the group entered into a share sale and purchase agreement with the Bharti group regarding the 5.6 per cent direct shareholding in Bharti Airtel. On May 9, the Bharti group irrevocably agreed to purchase this shareholding and the group (Vodafone) expects to receive $1.6 billion in cash consideration for such shareholding by November 2008. The shareholding will be transferred in two tranches, the first before March 31, 2008, and the second by November 2008,” Vodafone said in statement accompanying its annual results.
However, Vodafone can retain its indirect holding of 4.4 per cent in Bharti Airtel through the holding company Bharti Enterprises because this stake is less than 10 per cent. Secondly, Since Bharti Enterprises is not listed, it will be difficult for Vodafone to divest this sake.
Since the Bharti group has already committed $2.5 billion to the retail business, sources said it might sell the 5.6 per cent stake after buying it from Vodafone to its existing partner SingTel or to private equity firms. SingTel has made it intention clear that it wants to increase its holding in Bharti Airtel from the present level of a little over 30 per cent.