Vodafone Essar

The world's largest telecommunication company Vodafone has finally sealed the Essar deal by selling 5.5 percent stake in its Indian operations to cash-rich pharmaceutical company Piramal Healthcare for Rs 2,900 crore,  or $640 million.The deal values Vodafone Essar, India's second-largest telecom company by revenue, at around $11.6 billion.The move, however is being seen as a temporary financial investment,  as it now allows Vodafone to comply with India foreign direct investment norms, which caps the maximum foreign investment to 74 percent and rules that the remaining 26 percent must be India-owned.[caption id="attachment_58799" align="alignleft" width="380" caption="Reuters"][/caption]In  July 2011, Vodafone Group agreed  to buy out  Essar from its Indian mobile phone business. The UK firm paid $5.46 billion to its Indian counterpart — The Ruias—to take Essar out of its 33 percent  stake in the Indian subsidiary. This left Vodafone owning 74 percent of the Indian business, while the remaining 26 percent  will be owned by Indian investors, in compliance with Indian law.Vodafone-Essar has a subscriber base of 141.52 million at the end of June.On 11 Feburary 2007, Vodafone acquired a controlling stake in Hutch-Essar for $ 11.1 billion. The 67 percent stake was held by Li Ka Shing Holdings earlier. With the acquistion Vodafone pipped telecom biggies Reliance Communication,  Hinduja Group and Essar Group, which own the remaining 33 percent.In January 2011, Vodafone objected to Essar’s plans to place part of its 33 percent  stake in India Securities, a small public company. Vodafone feared the move would give an inflated market value to Vodafone Essar.Vodafone is also locked in a legal battle with Indian tax authorities over a $2 billion tax demand on acquisition of 67 percent stake of Hutchison in Hutchison-Essar for over $11 billion.The I-T department had raised a demand of about $2 billion on the UK-based telecom company as it had failed to deduct (withhold) capital gains tax at the time of stake purchase.Interestingly, Vodafone is  likely go ahead with a public listing in India, irrespective of the Piramal transaction.Though Vodafone will have to comply with regulatory norms of the stock market, it will still hold a controlling stake in the firm. Moreover, it will get to raise fresh money, which can be used to invest in the domestic market.