Billionaires Ajay Piramal and Analjit Singh have sold their stakes in Vodafone India to Vodafone Group Plc, enabling the British telecom major to take full control of its local telecom venture. While Piramal Enterprises, the Ajay Piramal group flagship, sold the 10.97% stake for Rs.8,900 crore, Singh sold his 24.65% holding for Rs.1,241 crore.Piramal Enterprises sold its entire stake for Rs.1,960 per share, securing a gain of Rs. 3,000 crore, or 52% return in just two years. The pharma-to-real estate company had bought the Vodafone stakes in two tranches — in August 2011 and February 2012 — paying a total of Rs.5,864 crore, or Rs.1,290 per share.
Vodafone Group said that while the transaction with Singh was complete, that with Piramal will likely close Friday. Vodafone India is the country’s second largest mobile phone operator, trailing Bharti Airtel.
Both the transactions were approved by the Foreign Investment Promotion Board (FIPB) in January as a part of Vodafone Group’s proposal to raise its stake in its Indian unit to 100% from 64%.
However, the difference in the valuation of the stakes held by Piramal and Singh raised a few eyebrows. Singh and Vodafone though in early January jointly clarified that the lower valuation of the former’s stake in Vodafone India reflected the fact that his holdings were through various companies, some of which had “significant” debt and were in line with agreements between the two parties filed with the government in 2007 and 2009.
The deal with Piramal values Vodafone India at Rs.80,909 crore, which is way below the market capitalisation of Bharti Airtel at Rs.1,27,997 crore but greater than those of other listed telecom firms. While Kumar Mangalamowned Idea Cellular has a market capitalisation of Rs.48,433 crore, Anil Ambani’s Reliance Communications is valued at Rs.27,823 crore.
Vodafone India’s valuation has gone up by 50% in the last 32 months. During the same period, Bharti Airtel’s market cap declined by 6% while Idea’s rose by 107%.
The UK-based company assumes full control of its India business at a time when the telecom sector is just emerging from several years of cutthroat competition, which had hurt revenue and profitability. However, competition has been easing over the last few quarters, while the government has also moved to clear policy uncertainties around spectrum pricing and M&A with rules around bandwidth trading and sharing also on the anvil. Still, tax troubles continue to haunt the company in India, the latest being one related to the sale of its call centre business. The tax department had slapped a demand of Rs.3,700 crore in a transfer-pricing order in connection with sale of the call centre business to Hutchison Whampoa Properties India and “assignment of call options” to Vodafone International Holdings. An appeal tribunal has stayed the tax department order for six months, with conditions.
However,the Rs.20,000 crore tax liability case, including interest and penalties, that it already faces ever since it acquired Hong Kong-based Hutchison Whampoa's Indian cellular operation six years ago has still not been resolved, with the company keen that conciliation takes place outside Indian jurisdiction, something New Delhi doesn't agree with.
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