India delays Vodafone's purchase of Hutch Essar
India has delayed the approval of British telecom giant Vodafone's multi-billion-dollar deal to buy Hutchison Essar while it decides whether the Indian cellular company's shareholding structure meets foreign investment rules.
The announcement came after a meeting of the Foreign Investment Promotion Board which was examining if the shareholding structure breached regulations allowing foreign ownership of up to 74 per cent in a domestic telecom firm.
"I have sought more comments from the companies. They have agreed to give us more details. The decision has been deferred," Finance Secretary Ashok Jha told reporters late on Thursday.
He gave no time frame for a decision.
Last month, Vodafone agreed to buy Hong Kong-based Hutchison Telecommunications International Ltd's (HTIL) controlling interest in India's fourth-largest cellular player Hutchison Essar for 11.1 billion dollars.
Vodafone Group Plc, the world's largest mobile phone company by sales, has insisted the deal conforms with Indian rules and that it expects the purchase to close in the second quarter.
HTIL holds 52 per cent of Hutchison Essar directly and has an "economic interest" in another 15 per cent held by Asim Ghosh, Hutchison Essar managing director, and Analjit Singh, chairman of healthcare group Max India, officials say.
The balance — 33 per cent — is held by Indian steel-to-shipping conglomerate Essar but two-thirds of its stake is controlled through an offshore company for tax reasons, making it foreign.
Hutchison Telecom stood guarantor for the loans for minority stakeholders Ghosh and Singh. If India decides this arrangement makes the minority stakes foreign owned, the FDI cap of 74 per cent in Hutchison Essar may be breached.
Both Singh and Ghosh say they are the real owners of the stake and not a front for HTIL.
The shareholding arrangement was approved by the Foreign Investment Promotion Board — the decision making body for foreign investment in the country — last year.
The board was believed on Thursday to have sought details of the loans taken by Ghosh and Singh for acquiring their stake in Hutchison Essar.
Vodafone's Director for External Relations Mathew Kirk said the company was "happy to be offering" the government any information they want.
Vodafone, which is aiming to offset saturation in Western markets, has said it wants to make Hutchison Essar India's number one cellular operator by 2010.
HTIL was represented by a law firm at the meeting.