Essar exits Vodafone-Essar JV for USD 5 billion
With this, Vodafone may have to look for another domestic partner to remain compliant with the FDI norms in the telecom sector of a maximum stake of 74 per cent.
“Vodafone Group announces that the Essar Group has exercised its underwritten put option over 22 per cent of Vodafone Essar Limited (VEL). Following the exercise by the Essar Group of its put option, Vodafone has exercised its call option over the remaining 11 per cent of VEL owned by the Essar Group, resulting in a total cash payment of USD 5 billion,” Vodafone said in a statement.
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.
On the other hand, Put Option is an option contract giving 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.
With this, Essar will exit completely from the joint venture, which is offering nationwide mobile services in India. Vodafone has over 130 million subscribers and is the third largest operator in India.
Vodafone also said that final settlement is anticipated to be completed by November, 2011.
Sources in the know said that the completion of deal would be subject to meeting certain conditions which include Reserve Bank of India’s permission as well as valuation of the deal.
The final shareholding pattern post this deal was not provided by the company as it was not clear whether Vodafone’s stake would exceed the 74 per cent FDI limit.
Vodafone had entered Indian market in 2007 when it bought Hutchison’s stake in the joint venture for over USD 11 billion and after that it had entered into an agreement with Essar for a call and put option for its stake.
The two firms were locked in battle over Essar’s plan to list a firm that had part stake in the joint venture to find out market value of its 33 per cent stake.
The move was opposed by Vodafone saying this may not give true value of Vodafone’s stake. It had approached the market regulator SEBI and also filed a petition in the Madras High Court.