Vodafone deal cleared in India

The Vodafone Group has received clearance from the country’s finance minister, P. Chidambaram, for its plan to acquire a majority stake in Indian mobile services operator Hutchison Essar.

Newspaper reports in India said the approval had been received Friday. Finance Ministry sources were not immediately available for comment. Vodafone’s investment plan was cleared about a week ago by the country’s Foreign Investment Promotion Board (FIPB).

Hutchison Telecommunications International Ltd. (HTIL), the majority share holder in Hutchison Essar announced in February that it had entered into an agreement with a subsidiary of Vodafone Group to sell its 67 percent direct and indirect equity and loan interests in Hutchison Essar for a total cash consideration of $11.1 billion.

The finalization of the agreement was delayed as the FIPB investigated whether Hutchison Essar of Mumbai may have violated Indian rules on foreign investment, which limit foreign equity in telecom services companies to 74 percent.

After the deal is completed, Vodafone will hold 52 percent direct stake in the joint venture. It will also have options over 15 percent of the equity currently held by Indian partners. The FIPB has however ruled that these Indian partners cannot sell equity to foreign investors without government approval, to prevent the 74 percent equity ceiling on foreign equity being breached.

The Essar Group, Vodafone’s joint venture partner in Hutchison Essar, holds 33 percent of the equity in the company, of which 22 percent are held by a group company registered abroad.

India’s booming mobile services market is attracting foreign investments in equipment manufacture and services provision. The number of mobile subscribers in India were 166.05 million at the end of March, up by 68 percent over a year ago, according to the Telecom Regulatory Authority of India (TRAI) in Delhi.