Vodafone India's initial share sale will likely raise Rs15,000-18,000 crore
Mumbai: Vodafone India Ltd, the Indian unit of Vodafone Group Plc., is planning to file its draft initial public offering (IPO) documents by September, said two people aware of the development.
The IPO of India’s second-largest telecom operator by customers will likely seek to raise ₹ 15,000-18,000 crore, they added.
“The kick-off meeting with the Tier-I banks Kotak, Bank of America and UBS happened a few weeks ago and work has started full swing on the documentation part. The company is looking to file the draft red herring prospectus (DRHP) by the month of September," said one of the two, who spoke on condition of anonymity as he is not authorized to speak to the media.
The aim is to complete the listing before 31 March 2017 and, therefore, to file the DRHP as early as possible, this person added. He said that the company seems well-placed to file the draft document by September.
On 30 April, Reuters reported that the British telecom firm had hired Bank of America Merrill Lynch, Kotak Mahindra Capital Co. Ltd and UBS as joint global coordinators of its Indian unit’s IPO. Deutsche Bank, HSBC and ICICI Securities were appointed as joint book-runners, the report said.
A spokesperson for Vodafone Group declined comment.
“We have previously said that we have started preparations for a potential IPO, which includes private conversations with banks, but this is a lengthy process and no decision will be made until we are at the end of it," the spokesperson said in an email.
The share sale will largely be a primary capital fund-raising exercise, said the second person, who asked not to be identified.
“Much of the share sale is to raise primary capital for the Indian unit, which will go towards reducing the debt on its balance sheet, on account of spectrum purchase, as well as towards capital expenditure," added this person.
The parent company is likely to sell some part of its stake through a secondary share sale in the IPO, he added.
In October, Vodafone India announced that it would spend ₹ 13,000 crore for capacity augmentation and new business initiatives. Since starting operations in India in 2007, Vodafone has invested over ₹ 1.1 trillion in India, the company said.
The telco has 194 million customers in India, according to its website.
Vodafone India reported revenue of ₹ 42,352 crore in 2014-15, an increase of 12.6% from the previous year.
Vodafone may sell about 10% of the India business through the share sale that would value its operations at $20 billion, an April Bloomberg report said.
Bharti Airtel Ltd, India’s largest telco, has a market capitalization of ₹ 1.41 trillion. Idea Cellular Ltd has a market cap of ₹ 41,299 crore.
The proposed share sale comes even as Vodafone wages a protracted battle against the Indian taxman.
The tax department and Vodafone have been locked in a dispute since 2007 over the telecom company’s $11 billion acquisition of Hutchison Essar Ltd, now known as Vodafone India.
The tax demand, which was initially around ₹ 8,000 crore, has now more than doubled to ₹ 20,000 crore after adding interest and penalty.
Though the Supreme Court ruled in favour of Vodafone in the tax case, the government in 2012 introduced a retrospective amendment to tax laws, bringing such transactions under the tax net. This prompted Vodafone to launch international arbitration proceedings.
According to experts, the tax tussle between Vodafone Group and the Indian government is not likely to impact the IPO plans of the domestic unit, as the tax is a liability of the parent entity.
“The tax liability arising out of the acquisition of shares from Hutchinson is in the hands of the buyer of the shares, the parent entity, Vodafone International Holdings BV. Hence, if it is determined that withholding tax is payable in relation to the said transaction, the liability will fall on the parent entity and not the Indian entity," said Pranay Bhatia, partner, tax, at BDO India Llp.
According to Prithvi Haldea, chairman of Prime Database Group, a primary market tracker, investors are unlikely to be put off by the tax issue.
“The issue should not have any material impact on the Indian operations or the IPO, given that the liability is that of the parent entity. There could be negative impact only to the extent of the image—if the company has to pay the tax at the end—but investors will by and large be agnostic to this issue," he said.
Haldea added that the Vodafone India IPO will be a significant event for the Indian primary market.
“India has not had a major IPO in a long time. The offer can be a game changer in terms of bringing new investors to the Indian market as well as re-activating some of the dormant ones; being a very large IPO, it will be marketed aggressively."