The Vodafone Group’s Indian acquisition has entered its final lap of regulatory approvals. The deal between Vodafone, the world’s largest mobile telephony firm and Hutchison Telecom International Ltd or HTIL, the 67% owner of Hutchison Essar, India’s fourth-biggest cellular firm, comes up for discussion at a meeting of the Foreign Investment Promotion Board on Tuesday.
Different arms of the government—from the department of telecommunications to the central bank—have said they don’t have objections to the $11.1 billion deal, just ahead of the board’s meeting, sources close to the deal said. The buyout triggered questions in Parliament and a challenge in a Delhi court in the last fortnight.
The transaction became controversial over questions raised on foreign ownership in Hutchison Essar.
Foreign equity in Indian telecom services firms are capped at 74% by law.
The Ruia family-controlled Essar conglomerate, which owns a third of the Mumbai-headed cellular firm, splits its ownership through a set of Indian and foreign units. The Essar group’s foreign investment firms own 22% in Hutchison Essar, while 11% is controlled through Indian subsidiaries.
Of the remaining two-thirds equity of Hutchison Essar, 52%—HTIL’s stake being bought by Vodafone—is directly foreign held. The remaining 15% is mostly in the name Hutchison Essar managing director Asim Ghosh and Max India chairman Analjit Singh but critics say they represent HTIL. The Hong Kong company, they say, stands guarantees on bank loans to the Indian duo, which helped it purchase stakes in Hutchison Essar. In exchange, HTIL has an option to buy out their holding at par any time before March 2016.
A minority equity is held by financier Infrastructure Development Finance Corporation.
The FIPB had sought the view of the Reserve Bank of India on whether the Ghosh-Singh stake violated rules. “It seems that prima facie the banking regulator does not have objections on the equity structure held by HTIL,” said a source close to the development, requesting anonymity. The matter will now be decided by FIPB. A RBI spokesperson declined comment.
A legal expert said the Vodafone deal appeared safe by the technical interpretation of the law. “If FIPB means only legal control when it talks about 74% FDI limit, then there is no violation,” Akil Hirani, managing partner, Majmudar & Co said. “If it means economic control then there has been a violation and it needs to be investigated.”