New Delhi: The Essar Group has figured out that its 33% stake in telecom firm Hutch-Essar is worth $7.5 billion or Rs33,000 crore, not $5.7 billion as was earlier thought. The earlier calculation was based on the price UK’s Vodafone Group Plc. paid for Hutchison Telecom International Ltd’s 67% stake in Hutch-Essar, $11.7 billion.
In papers filed with the Foreign Investment Promotion Board and other Indian agencies, Vodafone had claimed that Asim Ghosh, CEO, Hutch-Essar and Analjit Singh, chairman, Max India, who — together hold a 15% stake in Hutch-Essar as representatives of HTIL and Vodafone — were shareholders with voting rights.
That implies that Vodafone has acquired only 52% in Hutch-Essar. The Essar logic is that if this 52% equity is valued at $11.7 billion, its 33% stake should be valued at $7.5 billion. The Essar Group, run by Shashi and Ravi Ruia, was itself a bidder for HTIL’s stake in Hutch-Essar.
Sources close to the development who didn’t want to be identified said Essar had asked Vodafone for a five-year put option at a minimum value of $7.5 billion. This means that Essar can,at any point of time in the next five years, ask Vodafone to buy out its stake for $7.5 billion. The sources added Vodafone had agreed to a two-year put option, but not the $7.5 billion tag. An Essar spokesperson declined to comment and said discussions with Vodafone were in progress.
If Vodafone were to agree to Essar’s demand and issue a put-option, it risks running afoul of Indian laws that limit foreign holding in an Indian telco to 74%, unless it acquires the 33% stake through Indian representatives.
The Ruias have said they will not sell out to Vodafone and are likely seeking the put-option as an exit route should the relationship sour between the firms. The exit route will help it raise more against its stake through debt than it otherwise could have.