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Essar says Vodafone trying to force it out of JV

Essar says Vodafone trying to force it out of JV
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First Published: Fri, Jan 21 2011. 07 52 PM IST
Updated: Fri, Jan 21 2011. 07 53 PM IST
New Delhi: Essar group, Vodafone’s partner in India, on Friday accused the British telecom giant of trying to force it out of their joint venture, the No. 3 player in the world’s fastest-growing major telecom market.
At issue is the valuation of Essar’s 33% stake in the company. Vodafone paid $11.1 billion in 2007 for a 67% stake in the firm.
Vodafone and Essar have locked horns in recent days over the Indian group’s move to merge a firm that owns an indirect 11% in their mobile joint venture with another Essar group firm, India Securities Ltd (ISL).
In a statement on Friday, Essar group said Vodafone’s objection to the merger between two Essar group firms were “motivated and factually incorrect” and that Vodafone was preventing discovery of the fair market value of Vodafone Essar.
“Vodafone is attempting to force Essar out of the company and own 100% of the Vodafone Essar at an artificially depressed value,” Essar group said.
Vodafone declined to give an immediate response, when reached in London.
Under Indian rules, Vodafone needs to have an Indian partner as foreign holding in telecom firms is capped at 74%.
Vodafone has said ISL was a “highly illiquid vehicle” and its value may be inaccurately used to calculate the value of the joint venture, Vodafone Essar.
But Essar said under their agreement the fair market value of the venture has to be determined by three international investment banks.
“If the market value being discovered by the merger were to be manipulated and artificial, as Vodafone claims, the investment banks would naturally ignore that value when making their determination,” it said.
Essar also said last year it wanted to list Vodafone Essar by offering its shares through an initial public offer but Vodafone “ensured that the IPO did not go through and no market value could be established”.
It did not explain how.
Vodafone entered the Indian market in 2007 by taking a 67% controlling stake in Hutchison Whampoa Ltd’s mobile business in India, in which Essar had been a partner.
The deal gave Essar the option to sell its entire 33% stake for $5 billion by May 2011, or part of it at a market-determined price. Vodafone has an agreement with Essar that gives it first option to buy out the Indian company’s stake if some or all of the holding is put up for sale.
Vodafone has struggled in the fiercely-competitive Indian market and last year took a charge of £2.3 billion on the value of its Indian assets. The company is also fighting a long-running tax case in courts over its 2007 deal.
The friction with Essar group also comes at a time when Vodafone is in the process of simplifying its structure.
The British firm has sold its stake in China Mobileand has agreed to sell its interests in Japanese carrier Softbank.
Vodafone has said it was open to disposing of further assets it does not control and its 44% stake in SFR, its French joint venture with Vivendi, and its near 25% stake in Poland’s Polkomtel are expected to go next.
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First Published: Fri, Jan 21 2011. 07 52 PM IST