Vodafone has admitted that Indian law prevents it from owning all of the 67% in Hutchison Essar that it said in February it was planning to acquire in a controversial USD11.1 billion deal. In a letter to the Indian finance ministry obtained by the Financial Times, Vodafone acknowledges that it would be breaching the 74% ceiling on foreign direct investment if it attempted to take direct ownership of all of the stake in the mobile operator.
Vodafone has signed an agreement to buy a 67% economic interest in Hutchison Essar from Hutchison Telecommunications International, a unit of Hong Kong tycoon Li Ka-shing’s Hutchison Whampoa. HTIL owns 52% of Hutchison Essar directly, with a further 15% held on its behalf by companies owned by two Indian nationals, over which it has call options. Vodafone is planning to replicate these shareholder and accounting arrangements. The 15% stake held by Asim Ghosh, Hutchison Essar’s managing director, and Analjit Singh, chairman of healthcare group Max India, does not count towards the foreign ownership ceiling while it is in their hands. The rest of the 74% quota is filled by Essar, an Indian conglomerate that owns 33% of Hutchison Essar and has structured its stake so that 22% is held offshore. This leaves Vodafone unable to own directly more than 52%. India’s foreign investment promotion board has delayed approval of the deal.