Mumbai: Sensing a possible legal dispute on the right of first refusal claimed by the Essar Group on equity in their joint venture Hutchison Essar, India’s fourth-largest mobile phone services company, foreign partner Hutchison Telecom International Ltd (HTIL) has filed a caveat before the Bombay High Court, as a precautionary measure.
Mumbai-based Essar, run by the Ruia family, claims it has a right on the 67% equity in the local venture, which HTIL sold earlier this month to Vodafone Group, the world’s largest cellular services for, $11.1 billion (Rs48,840 crore).
But HTIL says Essar’s right of first refusal is applicable only if 10% or more stake in the JV, is sold to Bharti Airtel, Reliance Communications or Tata Telecommunications and not to any other party.
“There was an apprehension that Essar could move the court and get a stay order on the sale of stake claiming its right of first refusal,” said sources familiar with the development, requesting anonymity. “HTIL’s move will now ensure that the court hears HTIL’s plea before it takes any decision,” he said.
Vikash Saraf, chief executive of Essar Teleholdings, when contacted on this issue declined to comment. HTIL will, on 9 March, seek its shareholders’ approval of the sale of stake to Vodafone. Essar was also a bidder for the stake sold.
Essar claims it has the right to purchase any stake sold by HTIL in the joint venture at the price being offered by any of the other buyers. Vodafone CEO Arun Sarin met the Ruias of Essar in Mumbai on 15 February to discuss a new partnership. Vodafone had also offered to buy Ruias 33% stake in the company but Essar has expressed a desire to continue as partners rather than exit the company.
Complicating matters, Essar group also says it’s considering all options, including a new partnership and exercising the right of first refusal on the stake being sold to Vodafone.
Meanwhile, a three-member arbitration panel set up to address the dispute of the merger of BPL Mobile’s Mumbai business with Hutchison Essar met for the first time on Wednesday. The panel is likely to give its verdict in 45 days.
In mid-2005 Essar signed an agreement with Hutch Essar to merge BPL’s four circles with Hutchison Essar.
Except Mumbai, where Hutchison Essar was already present, the other three circles were merged in September 2005. The regulatory permission for the merger of the Mumbai circle was not granted within the given timeframe.
Consequently, Essar terminated the agreement and Hutchison Essar went to court and got an injunction restraining Essar from selling, transferring or mortgaging shares in BPL Mobile. The Bombay High Court finally referred the dispute to arbitration in August 2006. Even as the arbitration proceeds, Essar and Vodafone are negotiating the terms of a new shareholder pact. The discussions are centred around a new right of refusal and a put option that will allow Essar to sell its stake to Vodafone at a price that’s at least as much as that paid by Vodafone to HTIL.