Vodafone, Essar to sign deal; name to be changed to Vodafone-Essar
15 March 2007
Mumbai: British mobile carrier Vodafone Group PLC and the Essar Group have reached an agreement to jointly manage mobile phone company Hutch-Essar and rename it Vodafone Essar.
Vodafone chief executive Arun Sarin and Essar vice chairman Ravi Ruia signed the partnership deal in New Delhi. The two would announce the partnership at a joint press conference.
Under the terms of the partnership agreement, Vodafone would have operational control of Vodafone Essar and Ruias would have rights, such as board representation, in accordance with their 33 per cent equity.
Ravi Ruia is likely to be appointed chairman of Vodafone Essar board, while Sarin would be named vice chairman. Seven of the 12 directors would be Vodafone nominees, while Essar would have four.
Analjit Singh, who along with Hutch-Essar CEO Asim Ghosh owns a 15-per cent stake, would also be on the board. Singh had started the company as Hutchison Max, before selling out to Hutchison Whampoa's HTIL.
Vodafone, the world's largest mobile phone company, last month won a $11.1-billion bid to buy a controlling 67-per cent stake in Hutchison Essar, a joint venture between Hong Kong-based Hutchison Telecommunications International Ltd. and the Essar group.
Vodafone is buying for cash the 52 per cent equity held by Hutchison Telecom and a combined 15 per cent stake owned by Singh and Ghosh.
HTIL's existing Indian partners Asim Ghosh, Analjit Singh and Infrastructure Development Finance Company Ltd (IDFC) have agreed to remain minority partners with their collective 15.03 per cent stake.
Hutchison Telecommunications International Ltd. said it would pay the Essar group $373.5 million at the close of the transaction to sell its stake in its Indian joint venture to Vodafone.
Essar's exit clause
Once the government eases the 74-per cent cap on foreign investment in telecommunications, Essar will have the right to sell its stake three years from now to Vodafone for $5 billion or an option to sell between $1 billion and $5 billion worth of shares of the joint venture company to Vodafone at an independently appraised market value.
"Essar has played a key role in transforming this business into a leading Indian mobile operator," the statement quoted Sarin as saying. "We look forward to leveraging this experience and working with our partner as the company enters its next phase of growth in the attractive Indian telecommunications market."
With European markets fully saturated, Vodafone sees India as a key area for potential growth. India is also now the world's fastest growing mobile phone market, adding more than 5 million new connections every month.
In the next few years, Vodafone plans to invest $2 billion in India.
Sarin said he expects approval from Foreign Investment Promotion Board (FIPB) in the coming weeks. Vodafone Essar would start selling its products and services under the Vodafone brand in due course.
While Vodafone had unilaterally announced market leader Bharti Airtel as a preferred carrier for NLD and ILD traffic, Bharti has no guarantee that it will carry Vodafone-Essar's long distance telecom traffic, with both the UF firm and Indian partner saying that the MoU was not a final agreement, much less legally binding.
"MoU is not a definitive agreement... It is not legally binding... It is just a statement of intent," Sarin told reporters after signing the agreement with Essar.
Vodafone and Essar, meanwhile, said they would explore opportunities in the telecom space in the Middle-East, while simultaneously working to become the largest mobile operator in India.
But, ahead of that, the joint venture partners would look to expand services to 22 circles from the present 16. The company already has licences for six circles.
Sarin said Vodafone would use its operations in 25 countries to supplement its Indian business. "The partnership would create next generation telecom business in India," Ruia said. Asked about his plans to capture 25 per cent market share by 2010, Sarin said: "We are clearly determined to be No.1 player".
Bharti Airtel is the current market leader with over 33 million subscribers.