New Delhi, April 27: The Foreign Investment Promotion Board (FIPB) today cleared Vodafone’s $11-billion takeover of Hutchison Essar.
According to the FIPB, the 15 per cent minority shareholding in Hutchison Essar is not owned or controlled by foreign entities, making the company fully compliant with FDI norms.
The minority stake is with IDFC, Hutch Essar managing director Asim Ghosh and Max group chief Analjit Singh.
“The case stands clear... FIPB has cleared it. We are fully satisfied with the compliance level ... they have to comply with Press Note 3 of 2007 to remain in the telecom sector,” said Ajay Dua, secretary in the department of industrial policy and promotion.
However, FIPB’s approval comes with a few conditions. Minority shareholders Ghosh and Singh cannot sell their stakes without government permission. The government will allow a stake sale only if it complies with Press Note 3, which deals with the 74 per cent foreign direct investment (FDI) cap in telecom.
Therefore, if 15 per cent of the total Hutch Essar stake is to remain with Indian stakeholders, Ghosh and Singh cannot sell their shares to Vodafone or any other foreign company.
Now the last step for the British telecom company’s entry into India is a green signal from the finance ministry. “That is only a matter of protocol, and should not pose any hurdles,” said a DoT official.
Both Ghosh and Singh, however, plan to wait for a formal letter of approval before celebrating FIPB’s approval.
They had met finance ministry officials yesterday, along with representatives of Hutchison Telecommunications International and the Essar Group, to explain their position.
The minority shareholders are even willing to provide an undertaking saying they would hold on to their stake.
Welcoming FIPB’s positive recommendation to finance minister P. Chidambaram, a Vodafone spokesperson said: “We will await his decision.”
The FIPB had earlier deferred a decision on Vodafone’s application thrice and sought the law ministry’s opinion to ascertain there was no breach of the FDI limit.
While the 52 per cent stake, which was held by HTIL and was bought by Vodafone, is clearly foreign shareholding, Indian partner Essar had routed 22 per cent of its 33 per cent stake through firms registered overseas. This meant Hutch Essar already had 74 per cent FDI.
Telecom Watchdog, an NGO, had filed a petition in Delhi High Court alleging that the stake held by Ghosh and Singh was actually controlled by Hutchison and now Vodafone as Hutchison had stood guarantee for the loans taken by the duo to buy this stake.
With the clearance of the deal, Hutch Essar would become Vodafone Essar and the services would be operated under the Vodafone brand.
Immediately after the deal in February, Vodafone CEO Arun Sarin had visited India and announced an investment of $2 billion (about Rs 8,000 crore) in the next couple of years to expand services.
“We will try to get more rural areas covered with this investment,” he had said.
Sarin had said customers can look forward to lower call rates, better handsets and value-added services once Vodafone entered the country.