Essar seeks to be equal partner in Vodafone JV

MUMBAI: The Essar group may seek extra management rights and more stake in the JV with Vodafone. The group also wants a put option on its stake to be exercised after 3-5 years. A source said Essar wants to be an equal and prominent partner in the venture. It wants its shareholder rights to be protected, a sentiment echoed in the press statement released by the group on Thursday.

The source denied that the Ruias had put forward any conditions in the meeting with Mr Sarin. He added that the group officials are still discussing various issues and will take a final view in the coming week. On the specific issue of a higher stake and a put option, the source maintained that the group is still discussing various options.

A higher stake and a put option will give the Essar group some specific advantages. With over 40%, Essar will be more or less on equal terms with Vodafone which has 52%. It will add weight to its position that the group is a serious player in the telecom business.

Since the additional stake cannot be through an equity infusion (that would dilute everybody’s holding, including that of Vodafone), it will have to be done by buying out an existing shareholder. One of the Essar group’s domestic companies will have to do the transaction so as to comply with existing 74% guidelines on foreign direct investment.

The Essar group already holds 22% of its 33% in Hutch-Essar through foreign companies. So using an overseas outfit is ruled out. Analjit Singh and Asim Ghosh, the Indian partners of Hutchison and now of Vodafone, together hold about 12.26% in Hutch-Essar.

If Essar buys out both, its stake will touch about 45%. A put option will help Essar protect its downside. It will ensure that the group gets an exit opportunity and that too at the current valuation. This will become important especially if the telecom business turns volatile.

sriram.ramakrishnan@timesgroup.com