FIPB to vet Vodafone deal today

NEW DELHI: The fate of Vodafone’s $11.1-billion takeover of Hutchison-Essar Ltd (HEL) was poised delicately on Thursday with finance secretary Ashok Jha presiding over a series of meetings in the run up to the much-awaited Foreign Investment Promotion Board (FIPB) meeting on Friday that is expected to take a call on allegations related to violation of FDI policy by the telecom operator.

HEL CEO Asim Ghosh and Max India chief Anajit Singh — whose 12.26% shareholding is in the eye of a storm due to benami charges — met finance ministry officials, along with representatives of Hutchison Telecommunications International Ltd (HTIL) and the Essar Group, to explain their position.

While speculation was rife about a compromise formula that would pave the way for a ‘conditional’ clearance, the minority shareholders assured finance ministry officials that there was no question of selling their stake in HEL. They informed officials that they were willing to provide an undertaking that they would hold on to their stake.

While the law ministry had reportedly provided a clean chit to HEL on FDI policy violation charges but Telecom Watchdog — an NGO which had filed a PIL in Delhi High Court over FDI policy violations — countered the ministry’s view in a strongly-worded letter submitted to the board on Thursday. Dr Ajay Dua, secretary in the department of industry policy & promotion (DIPP), indicated that FIPB would take a decision on the issue on Friday, after deferring the case on three previous occasions.

Officials said some concerns persist despite the law ministry’s conclusion that FDI policy was not violated. Pricing guidelines are applicable to such deals and the law ministry has also underlined this crucial factor while delving in the $430-million valuation estimated for the 12.26% holding of the minority shareholders, they added. “It may be noted that for transfer or issuance of shares in case of a resident vis-a-vis a non-resident or an Indian company which is a subsidiary of a non-resident, the pricing guidelines and FDI restrictions are applicable and as such any pre-determined pricing formula agreed between the parties shall not be enforceable in the event the same does not fall in line with the regulatory provisions,” is the law ministry’s view.

It was in this context that clarifications were provided to the finance ministry on a submission made by Hutch on April 9 over valuation and status of the minority shareholding, officials said. “We met the finance secretary to clarify our submission of April 9. And we will await the outcome of FIPB on Friday. Let FIPB take its own time, we will not interfere in the process of law. We respect the government’s way of functioning, I expect nothing. That was not the aim of the meeting...” Mr Ghosh said after the meeting in the finance ministry.

When asked whether he saw the possibility of FIPB asking him along with Mr Singh to divest their stake with a window to reinvest later, he said: “I would be very surprised, because then they are telling me I am not the owner of the shares and that is not the position I can accept.”

Officials said the FIPB is looking at various issues related to the mega deal. In any case, the board’s decision is subject to scrutiny of the Delhi High Court which had given two months to the government to firm up its view on the FDI policy violation charges.

The UK-based Vodafone had acquired control of the company in February this year, but needs FIPB clearance to implement the deal. The telecom ministry has given clean chit to the transaction saying there was nothing wrong with it going by the licensing conditions but the views of the DIPP, the department of commerce, the home ministry and the finance ministry are expected to be submitted at the board’s meeting.

During the meeting with Mr Jha, the minority shareholders provided clarifications on the pact under which the UK-based cellular major can buy back the 12.26% stake held by the minority shareholders at a pre-determined fixed price of $430 million. As per the clause, the $430 million valuation for the 12.26% held by Mr Ghosh and Mr Singh. stake stands frozen up to a future equity valuation of $25 billion for the company.

While the law ministry’s view is that shares in an unlisted Indian company cannot be bought over by non-resident at less-than- fair valuation, CPI MP Ajay Chakraborty has alleged that the 12.26% stake of Mr Singh and Mr Ghosh should be worth $2.7 billion if one goes by the deal size of $11.1 billion announced by Vodafone.