Vodafone pays $1.9 billion towards Essar stake buyout

Moving forward on its bid to buy out the Ruia group's 33 per cent stake in their joint venture in India Vodafone Essar, British telecom firm Vodafone Group Plc on Wednesday paid its Indian partner Essar $1.9 billion (Rs22,200 crore) as the first tranche of its $5 billion deal to buy the stake of overseas firm Essar Telecom Ltd, which owns 22 per cent of Vodafone Essar.

The remaining 11 per cent stake is held by the Essar Telecommunications Holdings, another company floated by the group.

The current payment represents 50 per cent of the offshore holding of 22 per cent, which is valued at $3.8 billion. Vodafone is expected to pay the remaining $1.9 billion in November, when the companies hope to close the transaction.

The payment was unofficially confirmed by Essar executives to several newspapers. In London, Vodafone too acknowledged making the payment, though it did not specify the amount.

The issue of tax liability on the transaction is pending before India's Authority for Advance Ruling.

In March, the companies had agreed that Essar would exit the increasingly turbulent relationship by selling its entire stake to Vodafone.

Vodafone purchased a 67 per cent interest in the Indian joint venture from Hutchison Whampoa and two Indian shareholders, Analjit Singh and Ashim Ghosh, in 2007 in an $11-billion deal. At that time, the Essar group had negotiated a $5 billion guarantee for its holding.

The guarantee was given in the form of a put option that Essar can exercise between 8 May 2010 and 8 May 2011, which Essar chose to exercise in late March before the window closed.