Vodafone admits trouble over Essar

VODAFONE'S WOES over its intended purchase of Hutchison Essar (Hutch) aren't over yet. The FT has obtained a letter sent to the Indian finance ministry director, D.K. Singh, which effectively admits to spin.

As the INQ has pointed out before, the trouble stems from Indian law which prevents more than a 74 per cent holding in an Indian telecommunications company by a foreign company.

The main problem stems from the fact that Hutchison (HTIL) owns 52 per cent of Hutch directly. Essar owns 33 per cent. The remaining 15 per cent is held by two Indian nationals.

That should be fine but unfortunately two thirds of Essar's stake - 22 per of the whole of Hutch - is held off-shore. So Vodafone and Essar between them would hold 74 per cent off-shore.

That might be OK except for the unenviable position the two Indian nationals with the 15 per cent are placed in - Analjit Singh and Hutchison Essar's managing director, Asim Ghosh.

Firstly there are reports that they were able to purchase their share holdings thanks to letters of credit from HTIL itself. Which means that HTIL has effective control over their 15 per cent if it wants to.

Matters weren't helped by the fact that Vodafone's original press release mentioned a "consideration paid by Vodafone to acquire 67 per cent of Hutch Essar." That would imply it thought it was getting that extra 15 per cent, anyway.

Vodafone International's md, Erik de Rijk, claimed in the letter that Vodafone had intended to provide "a simplified tabular summary of a complex transaction for the benefit of its shareholders and the public."

This spin might just get Vodafone out of trouble but India's foreign investment board has yet to approve the deal. µ

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