The Foreign Investment Promotion Board (FIPB) approved Vodafone’s proposal to acquire shares from Ajay Piramal and Analjit Singh for over Rs.10,000 crore, making the British telecom company among the largest foreign investors in India, while also allowing Tesco to set up the country’s first multi-brand retail chain with overseas funds.
Vodafone had first spent $11.1 billion to acquire a 67% economic interest in Hutch Essar and then got Essar to offload its 33% shares for almost $5.5 billion. Through the latest transaction, which was approved by FIPB on Monday, the Vodafone will convert the Indian company into a wholly-owned entity.
Piramal holds almost 11% stake in India's second largest telecom company by subscribers, while Singh, who is Vodafone India’s non executive chairman, has a 24.65% holding. Vodafone Group will pay Analjit Singh Rs.1,241 crore and Piramal Enterprises Rs.8,900 crore for their stakes in Vodafone India as part of the transaction.
“We are pleased to have obtained FIPB approval to increase our stake in Vodafone India. The Cabinet Committee on Economic Affairs still has to endorse this decision before either transaction can take place,” Vodafone said in a statement. All foreign investment proposals of over Rs.1,200 crore have to be approved by CCEA.
A green light to Vodafone is the first instance of a telecom company being owned entirely by a foreign investor after the government recently allowed 100% FDI in a sector that has faced security concerns in the past.
Similarly, an approval for Tesco is the first case of a foreign multi-brand retail chain being allowed to set up shop in the country. The British retailer is buying 50% stake in Tata Group’s Trent Hypermarkets and intends to invest $110 million initially to open stores in Maharashtra and Karnataka. The investment comes even as several global players, led by the world’s largest retailer Walmart, have postponed their plans to enter India, citing rigid rules that require foreign companies to invest in creating back-end infrastructure and also source 30% goods from local players.
“This (FIPB approval) will now allow us to work on the practicalities of setting up the joint venture with Trent. Any such announcement will be made in the usual way,” a Tesco spokesperson said in a statement.
The FIPB has also approved foreign investment proposals of Johnson & Johnson. A decision on HDFC Bank’s proposal to raise more equity from foreign institutional investors (FIIs) was, however, postponed.
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