FIPB approves Vodafone deal in 4th attempt

NEW DELHI: The world’s largest mobile phone company, the UK-based Vodafone, on Friday received the Foreign Investment Promotion Board’s (FIPB’s) green signal to buy a controlling stake in Hutchison Essar, the fourth largest wireless player in India.

The FIPB, chaired by finance secretary Ashok Jha, cleared Vodafone’s proposal at its fourth meeting on the issue. Jha will retire as finance secretary at the end of this month. The proposal will now have to be formally cleared by finance minister P Chidambaram.

After a short meeting on Friday evening, Ajay Dua, secretary, department of industrial policy & promotion (DIPP), an FIPB member, told reporters that the Vodafone proposal had been cleared. The FIPB has recommended that the 15% stake held by Hutch India managing director Asim Ghosh, Max India chairman Analjit Singh and IDFC cannot be sold to any foreign entity.

While recognising the 15% minority stake in Hutchison Essar as an Indian holding, the FIPB suggested that the government should review foreign direct investment (FDI) norms across all sectors, by clearly defining ‘direct’ and ‘indirect’ holdings. A source, who did not want to be named, said such a review of FDI norms would prevent companies from acting as ‘fronts’ of foreign companies. “It would ensure better compliance with Indian FDI norms,” he said.

Telecom Watchdog, a non-government organisation, had moved the Delhi high court two months ago, alleging that the 15% minority shareholding in Hutch was actually a Hutch ‘front’, and that it was essentially a foreign stake. Telecom Watchdog stated in court that the foreign holding in Hutchison Essar (to be renamed Vodafone Essar) was 89%, well above the permitted ceiling of 74%.

But the law ministry gave a clean chit to the deal, stating that the 15% minority stake in Hutchison Essar was actually owned by Ghosh, Singh and IDFC, and, therefore, it should be considered as Indian shareholding. The law ministry is believed to have consulted attorney general Milon Banerji on the issue.

Telecom Watchdog has said that after going through the fineprint of the FIPB recommendation, it would explore all legal options.

The Hutch-Vodafone FIPB clearance is subject to the condition that the FDI level in Vodafone Essar does not cross 74%, the cap set for the telecom sector. Also, the company must comply with Press Note 3, 2007, which is the guideline for all telecom operators in the country.

Earlier this year, Vodafone announced its intention to buy a 52% direct stake in Hong Kong-based Hutchison Telecom International Ltd (HTIL) and the economic interest in the 15% stake held together by Asim Ghosh, Analjit Singh, and IDFC in Hutchison Essar for $11.1 billion. The deal had put an enterprise value of $18.8 billion on Hutch Essar, before debt.

For the past two months, the Indian government has been examining the Hutch-Vodafone deal to assess whether telecom FDI norms were being complied with or not.

British Prime Minister Tony Blair is learnt to have written to his Indian counterpart Manmohan Singh seeking early clearance of the Hutchison Vodafone deal.