While Indians fretted over the fall of the rupee last week, wondering what can be done to strengthen the currency that has lost 18% against the US dollar this year, in a distant development, US-based Verizon Communications and UK-based Vodafone were working out a huge deal.
As this column is being written, the boards of the two companies are expected to vote anytime on a $130 billion deal to give the US giant complete ownership of Verizon Wireless, in which Vodafone owns 45% stakes.
Now, Vodafone is a key player in India, but locked in a tax dispute with the government over capital gains tax involving a loophole that the British firm had used. The dispute has shaken investor confidence in India. After much wrangling, Vodafone and the government are in talks to work out a reconciliation that can help Vodafone get over its Rs. 14,000-crore tax liability in a manner that is acceptable to both.
Now, imagine Vodafone suddenly coming into $130 billion (That’s Rs. 850,000 crore!) in cash, and looking for a place to invest a large chunk of the money. Is not India’s one-billion population clearly the next big thing after China?
If India quickly approves merger guidelines for telecom companies and clears the air on spectrum pricing, Vodafone, and other foreign companies such as Russia’s Sistema may be waiting to invest huge amounts in the market. And the sooner India gets a big dose of foreign direct investment (FDI), the better it is for the rupee.
{{/usCountry}}If India quickly approves merger guidelines for telecom companies and clears the air on spectrum pricing, Vodafone, and other foreign companies such as Russia’s Sistema may be waiting to invest huge amounts in the market. And the sooner India gets a big dose of foreign direct investment (FDI), the better it is for the rupee.
{{/usCountry}}Sistema has also said that it can look at acquisitions in India if the spectrum pricing policy is clear. Telecom companies at home sitting on a big pile of loans could also do with an FDI rescue.