Of the 33 per cent share that the Essar group holds in Hutchison-Essar, 22 per cent is a foreign holding - through its Mauritius subsidiary. Following the purchase of Hutchison International's share by Vodafone, the group is now considering reducing this foreign holding to just seven per cent, so that its total foreign holding is restricted to 74 per cent, in keeping with the FDI norms for the telecom sector in India.
However, with Vodafone insisting that it had valued the deal at $11.1 billion to acquire 67 per cent interest in Hutch Essar - of which 52 per cent is directly held by Hutchison Telecommunications International Ltd (HTIL's) and 15 per cent by HTIL's existing Indian partners--Asim Ghosh, Analjit Singh and Infrastructure Development Finance Company Ltd. (IDFC) - the total foreign holding for Vodafone and Essar could be seen as 89 per cent.
A senior official in the legal department of Department of Telecommunications (DoT) said, “It is for both parties to decide what they want to do. The holding structure is taken into account at the time of signing the agreement and not post-facto. They have to convince not only DoT, but also all the agencies that the total FDI is only 74 per cent. If they fail, the whole deal could run into trouble.”
Vodafone insists on considering the 15 per cent stake as part of the deal since, the burden of risk and rewards to these companies will lie with them, claimed a Vodafone official in India.
An Essar spokesperson when contacted said, “We have never considered any such plan (to reduce the 22 per cent foreign holding) and we also do not consider the 15 per cent held by Asim Ghosh, Analjit Singh and IDFC as foreign, so there is no issue of 89 per cent FDI.”
While Vodafone officials in UK insisted that it would be entitled subsequently, directly and indirectly, to acquire shares in TII and Omega which are Indian companies as and when it is allowed by the foreign direct investment guideline. Vodafone will then own a 67 per cent interest that would be a foreign holding in Hutchison Essar, though it points only after the regulatory approvals are received.
Speaking to Hindustan Times from London, Ben Padvoan, head of Corporate and Financial Media relations Vodafone Plc said, “We are happy with the current dialogue between Indian government and us. We did expect such queries, but are confident that the whole process would be completed by June end.”
When quizzed about the details sought by Indian government on all its global operations Padavon said, “ I cannot comment on a specific query, but I would like to stress that Vodafone has been providing all the information that the government has sought and would be providing them in future.”