Amid a government investigation and pending court cases, Essar has upped the ante to extract more from Vodafone for its 33 per cent stake in Hutch-Essar.
The Essar group is now asking for $7.5 billion, much higher than the $5.7 billion its holding would fetch at the price Vodafone bought senior partner Hutchison Telecommunications International out of the venture.
If Essar manages to get the new price, Hutch-Essar's enterprise valuation will climb to $24 billion from $18.8 billion.
Sources close to the deal said on condition of anonymity that Essar had also asked for a five-year put option at a minimum of $7.5 billion. This, in effect, means Essar can ask Vodafone to buy it out at any point of time in the next five years at this price. The sources said Vodafone had agreed on a two-year put option, but not the $7.5 billion price tag.
The Essar spokesman declined to comment on the issue. "Discussions are still on with Vodafone," he added.
Vodafone is acquiring companies that own 67 per cent economic interest in Hutch-Essar. It will buy 52 per cent equity owned by Hutchison Telecommunications International, a debt of $630 million of its holding companies, as well as further debts of Indian shareholders, Asim Ghosh and Analjit Singh and IDFC (who together hold a 15 per cent stake on guarantees from Hutchison Telecommunications International).
Vodafone has agreed to pay $11.08 billion to Hutchison Telecommunications International after adjusting the debt of $630 million.
Vodafone had submitted to the Foreign Investment Promotion Board (FIPB) and other government agencies that Asim Ghosh and Analjit Singh were shareholders with complete voting rights. If that is the case, then Vodafone has only acquired 52 per cent in Hutch-Essar. If 52 per cent equity is valued at $11.7 billion, its 33 per cent stake in Hutch-Essar should be valued at $7.5 billion and not $5.7 billion, Essar has argued.
Although Essar has said it will not sell out to Vodafone, it has asked the British mobile giant for a put option. Since it is unlikely that Vodafone will list Hutch-Essar, Essar is seeking this as an exit option from the joint venture.
A minimum price also insulates Essar from any downside risk while retaining an upside. If Essar manages to get the option, it can raise debt against its stake.