30.10.13

Vodafone wants 100%

Vodafone Group said it has sought the government’s approval to invest Rs.10,141 crore to raise its stake in its India unit to 100%, becoming the first overseas telecom operator to take advantage of a relaxation in foreign investment rules in the sector.
UK-based Vodafone entered India in 2007 by buying Hutchison Whampoa’s local mobile phone business for around $11 billion. Its current direct stake in Vodafone India (VIL) stands at 64.38%, and indirect holding is at 84.5%. Piramal Enterprises holds about 11%, while the balance is owned by financial investors including Analjit Singh, Vodafone India’s non-executive chairman.
“We have always said we would like to increase our holding in the business and this further investment demonstrates Vodafone’s long-term commitment to India,” the world’s second-largest mobile phone company said in a statement on Tuesday. It added that once the current transaction is completed, the company would consider infusing more funds into its domestic unit by subscribing to shares of Vodafone India which has grown to become the country’s second-largest mobile phone operator by subscribers. “Looking ahead, Vodafone will continue to invest in India to bring the benefits of mobile communications and financial inclusion to more and more people across the country,” the company said.
Vodafone’s move has been widely anticipated since the government lifted the maximum foreign investment limit on the telecom sector from 74% earlier this year.
For Vodafone, India is a key market. The fastest-growing and second-largest telecom market in the world is also one of the British telecom major’s major revenue earning geographies. Moreover, Vodafone India needs cash ahead of spectrum auctions likely in January next year. While the company hasn’t confirmed its participation in future auctions, Vodafone India head Marten Pieters has said that operators do need bandwidth to deepen their services.
The India chief has also stated that rules permitting, Vodafone may also participate in consolidation in Indian telecom for which the company would need cash. The British company is flush with funds after its $130 billion deal with US' Verizon, and has said that it plans to increase its capital expenditures by $9 billion over the next three financial years, mainly to improve the quality of its network and focus on wireless broadband for subscribers in Europe and emerging markets such as India and South Africa.
Vodafone’s latest move will also be a shot in the arm for the Indian government struggling to revive an economy whose growth has slowed to its lowest in a decade, as it faces challenges of wide fiscal and current account deficits, and a weak rupee. New Delhi has been desperate for foreign funds to limit its current account gap this fiscal year ending March 2014 to less than 3.7% of GDP.
The company though has had a rough time since it entered India. The group booked a £2.3 billion impairment charge on its Indian operations in May 2010 due to stiff competition and a fierce price war. It is also embroiled in a long-standing dispute against the government over local authorities’ moves to tax and levy penalties worth Rs.20,000 crore over the UK company’s stake buy from Hutchison Whampoa. Both parties have agreed to settle it through arbitration. Vodafone has also moved court against a separate tax demand in an alleged transfer-pricing case.
Over time, Vodafone has also struggled with finding partners for its additional stake. It entered the company with its predecessor Hutchison's partners — the Essar Group. But at the end of a three-year period fraught with regulatory and some managerial disagreements, the two partners parted ways in 2010.

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