New Delhi: The 12.3% equity in Hutchison Essar Ltd, the mobile services company in which a two-thirds stake is being acquired by Vodafone Group, controlled by Indian shareholders Asim Ghosh and Analjit Singh is being valued at Rs1,900 crore.
Vodafone has agreed to buy a 67% stake in the company that is held by Hutchison Telecommunications International Ltd (HTIL) for $11.1 billion, or Rs47,730 crore.
The 4.7% stake owned by Ghosh, the chief executive of Hutchison Essar Ltd (HEL), is estimated at around Rs725 crore and the 7.6% stake owned by Singh, who is the chairman of New Delhi-based Max Healthcare, is being valued at Rs1,170 crore, according to documents filed by HTIL with the Foreign Investment Promotion Board, an apex government body that clears foreign investments in certain sectors.
The valuation, calculated by a ‘fair market value’ method detailed in the document, has been agreed to by both HTIL and Vodafone.
HTIL was forced to come out with an exact valuation after the Board, during its last meeting on 29 March, wanted to know exactly how much Singh and Ghosh would receive if HTIL or Vodafone exercised its options to buy the 12.26% held by them.
In a letter to the FIPB on 9 April, the Hong Kong-based firm said the valuation is based on an enterprise valuation of $25 billion for all of Hutchison Essar, but after deducting the debt liabilities of Ghosh and Singh incurred while buying their respective stakes.
The FIPB is examining if the Hong Kong-based company has bound the two shareholders to sell their combined 12.26% stake to it at a steep discount, thus negating their full ownership rights, in return for originally providing letters of credit to the bank that financed their original share purchases, thus making them proxies of the Hong Kong company.
It had also wanted details on how much the value of their holdings would turn out to be under such calculations.
“It was never contemplated that HTIL would agree to sell its entire interest in HEL as early as 2007... In the light of such unexpected developments...all the parties have agreed that the equivalent fair market value for the equity in ND Callus (through which Singh holds his stake) and Centrino (a company through which Ghosh owns his 4.7% stake) is $266.25 million (Rs1,170 crore) and $164.51 million (Rs724 crore) respectively,” HTIL said in its letter.
Vodafone, which may replace Hutchison Telecommunications as the majority owner of Hutchison Essar if its buyout is cleared by the FIPB, too, echoed HTIL’s position on the valuation in a letter to the Board. “We understand that the fair market value of the equity in ND Callus (Singh’s holding company) and Centrino Trading (Ghosh’s firm) is based on an upside equity valuation of $25 billion of Hutch Essar. As and when the options are to be exercised in the future, they will at minimum be valued at $266.25 million and $164.51 million... this will form the basis of our future partnership with Analjit Singh and Asim Ghosh...”
Ghosh and Singh also got relief on another quarter, with HTIL more or less giving up an option to increase its stake in their companies to around 97-97.5% at almost no cost.
The option given to HTIL to increase its stake to 97.5% stake in Ghosh’s company and 97% in that of Singh had drawn heat from the Board.
The Board had pointed out that by giving the Hong Kong company the option of subscribing to new shares of the firms owned by Ghosh and Singh, the two had effectively given away their chances of profiting from any increase in value of the shares, potentially violating Reserve Bank of India’s share-valuation guidelines.
In its reply, Hutchison Telecommunications played down the option and promised it will never use the extra-subscription rights it has over the two companies.
“It was part of the belts and braces security package for the HTIL group and was never intended nor will it be used to dilute the fair market value for the exercise of the ‘put’ options (selling rights enjoyed by Ghosh and Singh),” it said in the letter.