Vodafone makes it to the stock exchange, unwittingly

The Indian operations of the world’s largest telecommunications firm Vodafone Group Plc, called Vodafone Essar, now have an exposure on the Bombay Stock Exchange (BSE) — through India Securities, a little known subsidiary of the Essar group.

Late on Thursday, the Essar Group informed the BSE about the reverse merger of Essar Teleholdings, which owns 11% in Vodafone Essar, with India Securities, which is listed on the BSE.

An interesting subtext to the merger is that in late March, Essar had agreed to sell its entire 33% equity holding in Vodafone Essar to Vodafone under the terms of a previous agreement for a guaranteed price of $5 billion.

The guarantee was given in 2007, when Vodafone bought a 67% controlling interest in what was then Hutchison Essar for $10.9 billion.

Essar’s 33% holding is through two firms — 11% through Essar Teleholdings and 22% through Essar Telecom Ltd, an offshore entity.

Even as Essar has agreed in-principle to sell the 33% to Vodafone, transfer of the 11% in question is awaiting regulatory clearance.

The Reserve Bank of India’s (RBI) approval is required for transferring equity holding in an unlisted entity, to a foreign firm.

This, in effect, means India Securities would have an 11% ownership in Vodafone Essar, till the RBI clears the transfer of that to Vodafone under the $5billion deal signed in March.

Vodafone has already made a $1.9 billion payment to Essar as the first tranche for the 22% held by the offshore entity.

Efforts to merge the two Essar group firms had started in January but was pending in Madras High Court as it met stiff resistance from Vodafone, which objected to the merger on multiple grounds.

On Thursday, shares of India Securities lost 0.99% to close at Rs 60.25. At that price, the company had a market valuation of Rs 1,202 crore and a free float of Rs 360 crore.

The merger intimation to BSE was made after the trading hours.

Based on the $5 billion valuation of Essar’s 33% holding, the 11% now under India Securities is worth about $1.67 billion, or about Rs 7,464 crore - which is several times current market capitalisation.

Vodafone’s London-based spokesperson Ben Padovan did not offer any comments on the latest development.