Vodafone pays $1.9 billion to Essar as haze over tax liability lingers

Essar has received about $1.9 billion as the first tranche of a $5 billion transaction signed in late March with UK’s Vodafone Group Plc, its joint venture partner in Vodafone Essar Ltd, India’s third-largest mobile telephony operator by subscribers.

The current payment represents 50% of the offshore holding of 22%, which is valued at $3.8 billion.

Rest of the payment is expected before November, by when the transaction is scheduled to be completed, according to Vodafone.

The payment was confirmed by an Essar executive on condition of anonymity.

A Vodafone spokesperson in London also confirmed the payment, without specifying the amount. “We have settled the first tranche of the off-shore shares with Essar today,” Ben Padovan told DNA.

The issue of tax liability of the transaction is pending before India’s Authority for Advance Ruling.

In March, Essar, which held 33% equity stake in the Indian operations of Vodafone, had decided to exit the venture and sell the entire stake to Vodafone, as per an earlier agreement between the two parties.

In 2007, when Vodafone entered India by acquiring 67% ownership from Hutchison Whampoa Ltd in its Indian telecom operations — then called Hutchison Essar Ltd — for about $10 billion, the Essar group had negotiated a $5 billion guarantee for its holding. The guarantee was given in the form of a put option that Essar can exercise between May 8, 2010 and May 8, 2011, which Essar chose to exercise in late March before the window closed.

The Essar group owns its equity stake in Vodafone Essar through two firms — Essar Telecommunications Holdings Pvt Ltd, which owns 11% and overseas entity Essar Telecom Ltd, which owns 22%.