Flush with cash from its Verizon deal, British phone operator Vodafone is seeking to raise stake in its Indian unit to 100% from the current 64.38% and has approached the Foreign Investment Promotion Board (FIPB) for approval.
Vodafone will have buy out existing Indian stakeholders – the Ajay Piramal-led Piramal Group, which holds an 11% stake bought for Rs6,000 crore in February last year, Analjit Singh of the Max Group, who is also chairman of VIL, and IDFC – for complete control.
“The total inflow of foreign investment into India as a result of the proposed transactions will be approximately Rs10,141 crore. Following the completion of these transactions, Vodafone will also consider providing additional funding to Vodafone India Ltd (VIL) by subscribing to equity shares of VIL,” the company said.
Among the stakeholders, Piramal expects returns of 17-20% on his investment and Vodafone has an agreement to purchase his stake for Rs8,300 crore if the company doesn’t launch its Indian IPO by February 2014.
Analysts said Analjit Singh may cease to be chairman of VIL after the stake buyout and would be replaced by a Vodafone appointee.
According to a source, “Vodafone’s Indian IPO, which has been repeatedly postponed, may follow the buyouts. The 100% stake will also allow Vodafone a free hand to raise capex investments to upgrade its 3G network, which was difficult when its Indian partners were not able to raise equal funds.”
Vodafone plans to invest $9.66 billion globally over the next three years, using funds from its $130 billion deal to sell a 45% stake in Verizon Wireless to partner Verizon Communications Inc.
But does this development signal confidence in the Indian telecom sector?
Mahesh Uppal, director, Com (First) India, a firm dealing in telecom regulatory affairs, said, “Despite regulatory challenges, rural markets and data play makes India a strong potential market. However, while long-term players like Vodafone will continue to stay and invest, smaller players will wait and watch, and possibly go in for M&As instead. “
Another telecom expert, who did not wish to be named, concurred.
“While it is expected that serious players with large investments like Telenor and SSTL will also opt for 100% stake in India, Axiata and Singtel are unlikely to increase their stake in Idea Cellular and Bharti Airtel, respectively. In fact, Japan’s Docomo may soon sell its 26% stake in Tata Teleservices, viewing its telecom venture in India unprofitable. Changes in investor sentiment also depends on the M&A guidelines that would be released on November 1.”
Vodafone has 64.38% stakeholding in India unit
11% is held by Ajay Piramal
The rest is held by Analjit Singh of Max Group and IDFC
Telenor, SSTL expected to approach FIPB for 100% India stake next