Essar equal in mind, not reality: Arun Sarin

NEW DELHI: Vodafone, the world’s largest mobile service provider, and the Essar Group announced their partnership for Hutch Essar — to be called Vodafone Essar — the fourth-largest mobile operator in India, on Thursday.

With all the dots connected, the Ts crossed, is a partnership of equals on, as has been demanded by Essar?

“It is more a state of mind,” Arun Sarin, CEO of Vodafone, was quick to point out. “If you look at the venture as a combination of global and local experience, I would say, absolutely yes, it is a partnership of equals. But as shareholders, Vodafone’s 52% is of course more than Essar’s 33%, one could argue. So, the notion of equal is in the mind and not in reality.”

On the issue of the Vodafone application being examined by the Foreign Investment Promotion Board (FIPB), both Sarin and Ravi Ruia appeared confident that it will pass muster.

“We have furnished all data to FIPB. If FIPB raises questions, then we will think of what to do next,” said Sarin. So, Plan B will depend on the FIPB questions.

“We are confident of compliance, but FIPB has to reach its own judgement,” Ruia said. “We are hopeful of getting an approval from FIPB in the next 15 to 20 days.”
Meanwhile, after meeting with Sarin and Ruia, commerce minister Kamal Nath said on Thursday said that on the face of it, Vodafone Essar appears to be compliant with the government norms.

However, it seems that the issue of infrastructure-sharing between Vodafone and Bharti, for which the two parties have entered an MoU, is still a bit sticky.

Replying to a question, Sarin said, “An MoU is not a final agreement, it is an intent. We are open to other MoUs in the future with other service providers.”

Ruia was quick to interject: “A decision will be taken in the best interest of the company. If another company offers better terms, Essar would consider those.”

Essar had demanded the ‘partnership of equals’ after Vodafone had entered into an MoU with Bharti for infrastructure sharing without consulting Essar.

As per the agreement between the two, Ravi Ruia would be appointed the chairman and Sarin the vice-chairman of Vodafone Essar.

In India, the Hutch brand would be transformed to Vodafone over a period of time.

While Vodafone has a 52% stake in the company, Essar holds 33% and minority shareholders (Asim Ghosh, Analjit Singh and IDFC) have 15% amongst themselves.

Under the terms of the partnership, Vodafone will have operational control of Vodafone Essar, and Essar will have rights consistent with its shareholding, including proportionate board representation.

Essar will have the option to sell its 33% shareholding in Vodafone Essar to Vodafone for $5 billion between the third and the fourth anniversaries of the completion of this deal.

Essar will also have the option to sell its 33% stake between $1 billion and $5 billion worth of Vodafone Essar shares to Vodafone at an independently appraised fair market trading value.

Although Vodafone had purchased the Hutch stake at an enterprise value of $18.8 billion, the put option of Essar is at a discounted value. Ravi Ruia said, “This clause is only for downside protection…. It also indicates that Essar is committed to a long-term partnership with Vodafone.”

After the joint announcement at a press conference in New Delhi, Vodafone CEO Arun Sarin and Essar vice-chairman Ravi Ruia, along with their team, flew straight to Mumbai to celebrate the deal.

Asked Ruia if love blossomed on Valentine’s Day after Sarin sent him roses, Ruia replied, “Now I will send him rasgullas.”

Hutchison pays $415M to Essar

Hong Kong-based Hutchison Telecom International, which sold its controlling stake in Hutch-Essar to Vodafone, will pay over $415 million (about Rs 1,865 crore) to the Essar Group following an agreement, the company owned by Li Ka-shing said on Thursday.