Vodafone won't seek equity recast

KOLKATA/NEW DELHI: UK's Vodafone Group has indicated it will not press Hong Kong's Hutchison Telecom International (HTIL) to make any changes in its 67% holding structure in Hutch Essar (HEL). Vodafone's stand comes at a time when the Attorney General, at the instance of the law ministry, has been asked to take a view on whether the 12.26% collectively held in HEL by companies controlled by Asim Ghosh and Analjit Singh are tantamount to "benami transactions", especially since HTIL had extended the loans to the duo to buy their holdings.

In a recent communique to the finance ministry, the law ministry has noted that the "Attorney General's opinion" be sought on whether "Mr Singh and Mr Ghosh's holdings (in Hutch Essar) amounted to benami transactions since HTIL had provided funds to the duo to acquire their 12.26% holdings. Further, the law ministry note, a copy of which is with ET, also notes: "It must be examined if the credit support and the security given by HTIL to Mr Singh and Mr Ghosh's holdings as long term loan can be said to fall under the definition of a benami transaction under Section 2 (a) of the Benami Transactions (Prohibition) Act, 1988."

Vodafone on February 11 announced plans to acquire companies that control 67% interest in Hutch Essar, which includes the 12.26% bloc that is held by companies controlled by Hutch Essar MD Asim Ghosh and Max India chairman Analjit Singh.

With FIPB clearance on hold and in the backdrop of the law ministry's latest observations, ET had specifically asked Vodafone whether the company planned to discuss a possible a modification of HTIL's existing shareholding arrangement in Hutch Essar, especially since Vodafone is slated to replicate this arrangement after it concludes the Hutch Essar acquisition. In a written response, a Vodafone Group spokesperson said: "We will not be commenting on any discussions we have had or will have in future with the FIPB or other (Indian) government bodies. As you point out, we are not proposing any changes to the HTIL structure (in Hutch Essar) and we will continue to provide all information requested by FIPB relevant to the proposed transaction."

Elaborating, the spokesman added: "We have fully complied with information requests we have received and we will continue to do so. I'm afraid we won't be going into detail concerning our conversations with government officials, which will remain private."

"Vodafone will also emphasise to the Indian government bodies that in its original announcement, the company had stated that HTIL's existing partners (companies controlled by Asim Ghosh, Analjit Singh and IDFC ) who between them hold 15% interest in HEL, have agreed to retain their holdings and become Vodafone partners. Vodafone has already made it clear that it will have a 52% controlling stake in Hutch Essar. But as indicated in the original statement, it will consolidate 67% because that is where the balance of risks and rewards will lie with Vodafone," said a source.

Much is at stake for Vodafone in the run up to the next FIPB meeting later this month. FIPB, at the instance of the RBI, is examining a possible breach of FEMA (Foreign Exchange Management Act) and telecom FDI norms in Hutch Essar's holding structure in a 74% foreign ownership scenario. And it is now expected to take a final view only after the Attorney General takes a call on the Union law ministry's observations.
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