British telecom giant Vodafone Plc is set to apply to the Foreign Investment Promotion Board (FIPB) to raise its stake in its Indian arm to 100% from the current 74% at an estimated cost of $2.8 billion (about Rs 17,304 crore). This will make it the first foreign company to gain full control of its venture in India’s surging telecom industry.
A highly-placed source in Vodafone’s India unit told HT, confirming a report in UK’s Financial Times that the company will soon apply to the FIPB for this purpose. However, the company officially declined comment.
The government had in August approved 100% foreign direct investment in telecom, meeting a key demand of the funds-starved industry hit by the spectrum scandal in a cut-throat market.
Even though Vodafone enjoys management control of its Indian entity since its partners are only minority investors with no active role, the company wants to have complete control over the entity. Hence, it wants to buy out minority shareholders.
Vodafone, which entered India in 2007 by acquiring Hutchison Whampoa’s local cellular assets in a $11-billion deal, owns 74% in the nation’s second-biggest telecoms company by number of users.
Piramal Group is Vodafone’s largest Indian investor with close to 11% stakes in the company. The remaining 15% is owned by a group of investors headed by the Max group’s Analjit Singh, who launched one of the first telecom operating companies in Mumbai in 1994.
In August 2011, Ajay Piramal-controlled Piramal Healthcare bought 5.5% stake in Vodafone India for Rs 2,856 crore. Later, in February 2012, it doubled its stake in the company by purchasing an additional 5.5% stake for Rs 3,007 crore.
Vodafone India registered a 24.5% jump in operating profit to Rs 10,641 crore in 2012-13. Revenues also rose 10.2% to Rs 35,886 crore.
The UK telecom major has encountered numerous challenges, from the high cost of radiowave spectrum to a continuing Rs 11,000-crore plus tax dispute. Though Vodafone won the dispute in the Supreme Court in 2012, the then finance minister Pranab Mukherjee, while presenting the Finance Bill, 2012, had amended the income tax law with retrospective effect. The amendment allows transactions involving Indian assets to be taxed in India even if deals are executed overseas. Vodafone has opposed the move and has also expressed a desire to settle the issue out-of-court.