India's foreign investment panel clears Vodafone-Hutch deal

Apr 28, 2007, 6:47 GMT

New Delhi - Global telecom giant Vodafone is set to enter India with the country's Foreign Investment Promotion Board (FIPB) clearing its 11.1-billion-dollar acquisition of a controlling stake in domestic mobile phone firm Hutchison Essar, reports said Saturday.

The FIPB, which announced the decision on Friday night, had been examining whether the extent of foreign equity after the acquisition did not exceed the 74-per-cent cap imposed by the Indian government in the telecom sector.

'We are fully satisfied with the compliance level,' Ajay Dua, secretary of the Department of Industrial Policy and Promotion was quoted by the Indian Express daily as saying.

In February, Vodafone had agreed to buy a 52-per-cent controlling stake in Hutchison-Essar for 11.1 billion dollars from Hong Kong- based Hutchison Telecommunications International Limited (HTIL).

India's Essar Group has 33-per-cent stake in the company of which 22 per cent is through a foreign source, Essar Mauritius. Three other local promoters hold the remaining 15 per cent.

Local media outlets had reported that the foreign investment panel may consider the minority stakes held by two promoters - Analjit Singh and Hutch Essar Chief Executive Asim Ghosh who hold 12.3 per cent between them - as foreign holdings.

But the FIPB noted that the 15-per-cent minority shareholding was not controlled by foreign entities making the company fully compliant with India's foreign investment norms.

'They (the minority shareholders) will have to inform the government as and when they sell their 15-per-cent stake to a foreign player,' Dua said.

Officials said that FIPB's approval would now be placed before Indian Finance Minister P Chidambaram who would announce the decision.

In March, Vodafone said it would invest 2 billion dollars in the next two years in the Hutch-Essar mobile telecom venture to tap rural market, expand infrastructure and improve tele-density in India.

Soon after the Vodafone-Hutch deal, it was decided that Essar's vice chairman Ravi Ruia would be chairman of the new joint venture, while Vodafone's chief executive Arun Sarin would be appointed vice- chairman.