India’s finance minister has approved Vodafone’s bid to control Hutchison Essar, clearing the last big hurdle in the drawn-out battle for India’s fourth-largest mobile operator.
P. Chidambaram signed the deal on Friday, a week after India’s foreign investment regulator gave its crucial approval of Vodafone’s $11bn bid for Hutchison Essar, people familiar with the situation said.
The government’s final nod brings what would be the largest foreign investment in India’s history closer to completion after a two-month inquiry into the legitimacy of the company’s shareholding structure.
Ravi Ruia, vice-chairman of minority shareholder Essar, would become chairman of the company to be renamed Vodafone Essar; and Arun Sarin, Vodafone’s Indian-born chairman, would become its vice-chairman.
The two would head a 12-member board of Vodafone Essar to include Asim Ghosh, managing director of Hutchison Essar, and Analjit Singh, chairman of healthcare group Max India.
Mr Ghosh and Mr Singh together hold a 12.26 per cent stake in Hutchison Essar, which has been under intense scrutiny by the Foreign Investment Promotion Board, a unit of the finance ministry.
The FIPB was concerned by Hutchison Essar’s complex shareholding structure and the possibility the company had breached foreign investment rules.
Foreign direct investment in India’s telecommunications operators is limited to 74 per cent.
Hutchison Telecommunications International (HTIL) of Hong Kong, a unit of Li Ka-shing’s Hutchison Whampoa, holds 52 per cent of Hutchison Essar directly.
It has options over another 15 per cent held by Mr Ghosh and Mr Singh, chairman of healthcare group Max India, and an Indian investment vehicle.
The remaining 33 per cent is held by Essar, an Indian conglomerate, but two-thirds of its stake is controlled by an offshore company for tax reasons.
Since Vodafone agreed to buy a controlling stake of Hutchison Essar in February, FIPB had deferred its decision about the deal three times to seek opinions from several government bodies.
Approval hinged on the law ministry’s opinion about the nature of options exercised by Hutchison Telecom over stakes held by Mr Ghosh and Mr Singh.
The law ministry scrutinised put and call options that protected the two shareholders against potential “downside” but also allowed them to enjoy any economic benefits of their shares.
The FIPB decided investment rules had not been breached but reiterated Vodafone would need further approval to exercise options over the 15 per cent minority stake in Hutchison Essar in question.