Piramal to sell out of Vodafone India

Vodafone India can’t seem to catch a break. Licence rows, tax arguments – and now Piramal Group, the Indian conglomerate, has announced it is planning to sell its 11 per cent stake in the telecoms company.

The deal may not be a surprise to the company, but it hardly helps confidence.

Piramal told beyondbrics: “We had invested in Vodafone and it was a 24-36-month exit plan. We are still on track for that and we will exit either sometime this year or next…we are merely a short-term investor in Vodafone. We don’t want to be in the telecom sector for long. We have three options to exit. We could exit when Vodafone comes out with an initial public offering, or we could sell our stake to other companies, or we could even sell it to Vodafone”.

Shares in Piramal spiked on Friday morning to Rs610 on the back of the news, before falling back a bit. By lunchtime in Mumbai, the stock was up 0.7 per cent to Rs597.00.

Piramal Healthcare bought its stake in Vodafone India in two tranches from Essar, the Indian conglomerate as it exited as a shareholder. The investment was necessary for the UK’s Vodafone Group to comply with regulations which limited its ownership of the Indian unit to 74 per cent.

In February 2012, Piramal paid Rs30.07bn ($550m) to take a 5.5 per cent stake in Vodafone India from Essar, having bought another 5.5 per cent stake from Essar in 2011 for $640m. As the FT said at the time:

People familiar with the situation said Piramal had been granted options under which it could sell its Vodafone Essar stake to the UK group for $900m in two years’ time. Alternatively, Piramal could exit if Vodafone Essar proceeds with an IPO.

“When the deal took place it was some sort of structured deal, so maybe this is as per the terms”, Shobhit Khare, a local telecoms analyst, told beyondbrics. “Piramal mentioned they had a certain IRR [internal rate of return] which they were confident of achieving through this deal. And anyways, a Vodafone IPO was also due which couldn’t happen because of various regulatory issues and that was another exit option.”

Vodafone India has been in the spotlight lately, facing several problems in the country’s troubled telecoms sector. Earlier this week, the company complained after the Indian government refused to automatically renew its spectrum licences, forcing the operator to re-bid. The Indian unit is also in the midst of a $2.6bn tax dispute which is being closely watched by global investors as an indicator of uncertainty in the country’s tax rules.

Related reading:
India pharma goes gradually global, beyondbrics
India court summons Bharti chairman, FT
Vodafone rebukes India on spectrum renewal, FT