Vodafone deal gets FIPB clearance

A little over two months after the British telecom giant Vodaofone acquired the controlling stake in Hutch-Essar from Hutchison Telecommunications International, the Foreign Investment Promotion Board (FIPB) on Friday approved the deal. However, the approval came with a rider — the minority shareholders can only sell their stakes to Indian residents.

The decision is expected to have a long-term impact not only in the telecom sector, which will witness the entry of the world’s largest mobile operator, Vodafone, into India, but also in other sectors where the government has imposed limits on foreign direct investments, such as insurance.

“The approval will help in getting world-class services into Indian mobile telephony. Vodafone, the world leader in mobile telephony in terms of quality of service and new-generation technology, will bring them to India,” said Analjit Singh, chairman of the Max group who also owns 7.26 per cent in Hutch-Essar. “We are fully satisfied with the compliance level. They (Vodafone) have to comply with the new guidelines laid out Press Note 3 pertaining to FDI in the telecom sector. The minority shareholders will have to inform the government before they sell their stakes,” said Ajay Dua, secretary, department of industrial policy and promotion.

In February, Vodafone had acquired Hutchison Telecommunications International’s 52 per cent holding in the Indian company, in which the Ruia-controlled Essar group is the junior partner with a 33 per cent stake, 22 per cent through a foreign holding firm. The FIPB looked at the 15 per cent stake held in Hutch-Essar by development financial institution IDFC, Hutch-Essar Managing Director Asim Ghosh, and Max India Chairman Analjit Singh.

The FIPB had sought the opinion of the Reserve Bank of India and the Law Ministry on the complex shareholding pattern of Hutch-Essar and also sought clarifications about the options enjoyed by Hutchison Telecommunications International on the minority shareholdings. Concern was expressed by some, including Members of Parliament, who had said the transaction might violate FDI guidelines.