HongKong-based Hutchison Telecommunication International Ltd (HTIL), which has sold a majority stake to Europe's Vodafone in Hutchison Essar Ltd, has claimed that the total valuation of the joint venture is estimated at $25 billion to decide on the value of the individual stakes held by its key shareholders.
Based on a report by investment bank Goldman Sachs, which is also HTIL's advisor, HTIL has said in a letter to the Finance Ministry that the value of the controversial stakes held by HTIL's Indian associates industrialist Analjit Singh and chief executive officer of Hutch Essar, Asim Ghosh would be estimated at $266.25 million for Singh and $164.51 million for Ghosh.
These values are based on the company's valuation after deducting the debt on the holding companies of the two associates whose stakes are linked to a complex contract under which they own 12.26 per cent in Hutch Essar but are said to have no meaningful voting power which has raised questions from the point of view of regulation of foreign direct investment (FDI) in the telecom sector.
In a letter sent on Monday, HTIL submitted a detailed reply to the ministry on the key terms with regard to its indirect holding in the joint venture. In the previous board meeting on March 29, the foreign investment promotion board (FIPB) had asked all the related parties – HTIL, Vodafone and Hutch Essar - to submit the documents with relation to the changes in the shareholding pattern.
Under the subscription option, HTIL has the right to acquire additional shares in the holding companies of Analjit Singh and Asim Ghosh. The subscription option, which was exercisable at par value, may have resulted in the dilution of stakes held by Singh and Ghosh to 3 per cent and 2.5 per cent, respectively.
In addition to this, in order to restrict the downward risk, HTIL has the call option on these investment companies and the transfer price of the option would be at a fair market value as agreed by both the partners.
At the time of agreement in 2006, it was never contemplated that HTIL would agree to sell its entire interest in HEL as early as 2007, said the letter. "In fact, HEL was actively working on an initial public offer to be held in mid-2006. Nor was it imagined that the value of HEL would increase threefold in the course of a year. Such rapid growth in value partly reflects the presence of control premium in the transaction."
Income tax notice to Asim Ghosh
The Income Tax Department has issued a notice to the Asim Ghosh, managing director of Hutchison Essar and one of the Indian partners who owns 4.68 per cent effective stakes in the Joint venture.
The department has sent 33 questionnaires to Ghosh, asking not only for details of the transaction but also the rationale of the deal. It has also asked for details on the sources of Ghosh's income and all his investments in listed and unlisted companies.
The letter dated March 27 also asked about documents regarding the loan agreement and options given to Hutchison Telecommunication International Ltd. The authority has asked how much of Ghosh's funds have been invested to acquire his 4.68 per cent stake and what are the securities provided for taking such a loan from Rabo India.