The Ruia-controlled Essar group is set to exit Vodafone Essar, India’s second largest GSM mobile telecom service provider, by selling its 33% equity to Vodafone group at a pre-determined price of $5 billion (Rs 22,295 crore) in a deal that spells a cash chest for the sellers.
The deal ends an uneasy tussle between the two partners in a complex transaction that involved a big bet on the Indian market by UK-based Vodafone.
Foreign direct investment (FDI) guidelines put a ceiling of 74% on foreign investment. Vodafone would now have to find domestic investors to hold the 26 % under the guidelines.
“The Essar group has exercised its underwritten put option over 22% of Vodafone Essar Limited (VEL). Following the exercise…. Vodafone has exercised its call option over the remaining 11% of VEL owned by the Essar group resulting in a total cash payment of $5 billion,” said Vodafone in a statement “The final settlement is anticipated to be no later than November 2011.”
A call option allows an investor the right but not the obligation to buy a stock, bond, commodity or other instrument at a specified price within a specific time period.
A put option gives the owner the right but not the obligation to sell a specified amount of an underlying security at a specified price within a specified time.
“Vodafone group’s published net debt figure already includes this $5 billion,” said the statement.
After Bharti Airtel, Vodafone Essar is the largest GSM service provider with a subscriber base of over 130 million.
Relations between Vodafone and Essar group had turned sour during recent months and the two entered into litigation over Essar’s plan to list a firm that had a stake in Vodafone Essar.The move was opposed by Vodafone, which said this may not give true value of Vodafone’s stake. It had approached SEBI and also filed a petition in the Madras High Court. With Essar’s exit, all litigations come to an end.