Vodafone Has Failed To Produce Pact With Hutchinson: I-t Dept

[Honest 836]

Vodafone mulls new pact with Essar

The Economic Times l 31 Jan l Mumbai

Global telecom giant Vodafone may push for a new agreement, including crucial changes in shareholder rights with its Indian partner Essar, if the latter decides to only part sell its stake in the joint venture Vodafone Essar. Essar has a "put option" to sell its entire 33% stake for $5 billion, or to sell a part of it at a discovered price, to Vodafone which can be exercised by May.

The current agreement gives the Ruias of Essar the same boardroom rights, including a veto power, as long as they hold a minimum 10% stake in the JV, Vodafone Essar.

Sources said Vodafone wants a new agreement in which Essar's rights could be diluted, irrespective of how much stake the latter continues to hold. Vodafone's Italian CEO Vittorio Colao wants more flexibility in dealing with the local partner given their troubled history. This could be a crucial bargaining chip, or counter pressure, as both the shareholders are in the midst of an ugly spat over potential valuation of Essar's 33% shareholding in the JV.

Under the current scenario, Essar with four board members has veto powers on any Vodafone plan involving expenditure over $50 million and right of first refusal over its partner's stake, which is mutual.

While Vodafone would prefer to buy the entire Essar stake later this year, its local partner is most likely to opt for a part sale keeping its shareholding well above the requisite level to keep its rights. A put option gives the seller rights to offer shares at a specified price but does not place any obligation on the party to sell within a specific time.

A source in the Essar group, without wanting to be named, said it was very clear that the 10% stake will be retained to keep the rights intact. When contacted, a Vodafone spokesperson in London said that the company does not divulge shareholder rights and therefore, declined to comment.

Essar is expected to oppose any move to renegotiate the existing agreement unless both players agree to an amicable settlement. Sources said Vodafone believes the terms of its four year-old JV must be renegotiated-if Essar wants to extend the association-as the Indian partner holds significant boardroom leverage right now. It does not want to be frustrated by the local partner who would wield the same powers even after unlocking significant value in a part stake sale.

This could be another flash point depending on how the current situation unfolds. Essar's relationship has not been the same with Vodafone after its former CEO, India-born Arun Sarin, left the company over two years ago. It was under Sarin that Vodafone acquired 67% stake in Hutchison Whampoa , where Ruias hold the remaining 33%, for $11 billion in 2007.

The latest row between the partners erupted when Essar embarked on the reverse merger of Essar Telecom Holdings (ETHL) into its listed group firm, India Securities. Essar started the process as a price discovery move with the put option date approaching. ETHL holds a part (11%) of the Essar stake in the JV. Vodafone said it was concerned that such a move could distort the valuation of the JV and that the value of India Securities could be misinterpreted as a fair market value of Vodafone Essar.

Vodafone has filed an appeal against Essar's move in the Madras High Court where the latter has initiated the merger proposal of the two group firms. Essar reacted stating Vodafone had no locus standi to oppose the move as it was neither a shareholder nor a creditor in these companies.

Analysts have dubbed Essar's move as an exercise aimed at maximizing the potential value of its stake in Vodafone at a time when telecom valuations are under pressure due to regulatory hangover, controversies related to spectrum allocations, falling call rates and higher than expected 3G cost. Essar would think the value of its stake is higher than $5 billion, while Vodafone believes sectoral valuations have declined in recent years.

[Karthik R 246]

Voda, Essar shortlist UBS to value JV

MUMBAI: Vodafone and Essar have identified UBS as an independent banker to value their four year-old telecom joint venture Vodafone Essar. This comes at a time when Essar is looking to dilute a part of the 33% stake in the JV. Goldman Sachs and Standard Chartered are already advising Vodafone and Essar respectively in the ongoing the development.

UBS has not been officially appointed but has been identified. An Essar spokesperson declined to comment, while Vodafone could not be reached for comments immediately.

Essar has a put option, meaning it has the right to sell part or the entire stake to Vodafone by May this year. There is a pre-determined $5 billion price if Essar wants to shed the entire stake. But with Essar looking to divest only a part of its holdings, a fair price discovery process has to be set in motion. Under the existing agreement, both partners have agreed to appoint a third independent banker who along with the other two banks will work on fair price discovery.

Last month, the two partners were locked in war of words after the latter moved the High Court of Madras to merge Essar Telecom Holding with another listed group firm India Securities. Vodafone objected to the move stating it could distort the valuation of the main company, while Essar said it was a step towards price discovery.

Courtesy : Times of India

[Karthik R 246]

Don't penalise Vodafone till verdict, SC tells I-T

New Delhi: The Supreme Court on Friday asked the Income-Tax department not to impose penalties on Vodafone until an order is passed in this case after hearings in July. The court also allowed the tax office to continue with the case.

The apex court bench directed the telecom major to appear before the Income-Tax department to explain its position on the department's notice seeking imposition of penalty for its alleged failure to deduct tax at source on its stake purchase in Hutchison-Essar.

"No steps would be taken to enforce a penalty if imposed on the petitioner (Vodafone)," court ruled. It, however, asked the company to explain its position to the department as only show-cause notice was issued. "They (the I-T department) are asking you (Vodafone) to appear only. You go and appear and put your representation there. Let them pass the order," the court said.

Vodafone in 2007 purchased 67% stake of Hutchison in Hutchison-Essar for around $11 billion. The I-T department had raised a demand of about $1.7 billion for its alleged failure to deduct the tax at source for such transaction.

Vodafone has always maintained that under existing Indian laws, it is not required to withhold tax on the deal because the transaction took place in the Cayman Islands and both the buyer and seller were foreign.

"The company is surprised by the tax office's actions, especially as Indian law precludes the tax authorities from imposing penalties in cases where the assessee has acted on reasonable legal advice in view of past tax precedent in India or the issue of imposition of tax is being decided for the first time by courts of law in India," the telecom giant said in a statement.

- Economic Times

[Karthik R 246]

Vodafone May Consider IPO in 9-12 Months

MUMBAI -- Vodafone Group PLC Chief Executive Vittorio Colao said the telecom giant might consider an initial public offer for Vodafone Essar Ltd., its majority-owned Indian venture.

"I would not exclude that in nine months from now, twelve months from now, we will start thinking seriously if we should also have the general public as partner," he said, cautioning that Vodafone had to deal with a number of issues before deciding whether to take an offering.

Earlier this month, a person familiar with the situation said Vodafone's $5 billion buy-out of its Indian partner in the venture would pave the way to a possible initial public offering of stock in Vodafone's Indian operations.

On March 31, Vodafone had ended drawn-out negotiations with its Indian partner--the Essar Group--to buy out its 33% stake in the venture.

In an interview with a local TV station, Mr. Colao said Vodafone had been approached for an out-of-court settlement on its impending tax issue with the Indian government. He didn't elaborate when asked if Vodafone had been approached for such a settlement.

Vodafone has had a tough time in India since it bought Hutchison Whampoa Ltd.'s 67% stake in Hutchison Essar Ltd. for $11.2 billion in 2007. The Indian tax department said Vodafone had failed to withhold tax on behalf of the department and asked the company to pay as much as $2.6 billion in taxes and interest on the tax on behalf of Hutchison. Separately, it also asked Vodafone to pay a penalty for failure to withhold taxes. Vodafone has appealed against the demands in Indian courts saying the deal was between two foreign-registered entities outside India.

The British group had to book a GBP2.3 billion impairment charge on its operations in India last year due to stiff competition and a fierce price war.

Despite problems, Vodafone's Indian business reported a 15% rise in service revenue for the six months ended Sept. 30, 2010, compared with a year earlier, after adding 14.7 million customers during the period. The company now has over 127 million customers in India.

Vodafone expects to comply with Indian regulations--which limit foreign ownership of an Indian telecom company to 74%--in the next six months. As part of its deal with Essar, Vodafone will eventually own 75% of the venture.

- The Wall Street Journal

[Karthik R 246]

Court approves Essar group firms' merger

New Delhi: Essar Group firm India Securities said on Thursday an Indian court has approved its merger with another group firm that owns an indirect 11 percent stake in a local mobile joint venture with UK's Vodafone.

Vodafone said in a statement it was "disappointed" by India's Madras High Court's decision to approve the merger of the Essar firms, but added it would not affect a separate deal to buyout Essar from the joint venture.

Vodafone and Essar had locked horns this year over the planned merger of the two Essar Group firms, with the former saying India Securities' value may be inaccurately used to calculate the value of their joint venture Vodafone Essar. But late last month, Vodafone said it will buy out Essar's 33 percent stake in the joint venture for $5 billion and both the sides have said they expect to close the deal by November.

Essar Group, which had earlier said that Vodafone had nothing to do with the planned merger of the two Essar Group firms as it was neither a shareholder nor a creditor to the companies, said on Thursday the court decision vindicated its earlier stance.

"The objections filed by Vodafone were intended to delay the merger, and serve their own commercial interests to prevent the discovery of a fair market value of Vodafone Essar Ltd through a market mechanism," Essar Group said in a statement.

Via : Economic Times

[Karthik R 246]

Vodafone Essar’s 33% stake worth more than $5 B, argues Essar Group

New Delhi/Chennai : High Court verdict rejecting Vodafone's plea opposing the merger of the two Essar group companies, the Indian conglomerate on Thursday said its 33% stake in Vodafone Essar was worth more than the $5 billion that Vodafone was offering it.

Essar's stance counters Vodafone Group Plc Chief executive Vittorio Colao's arguments on Tuesday that its JV partner agreed to sell its 33% stake for $5 billion as it could not get a higher valuation. The Madras High Court on Thursday approved the merger of India Securities with Essar Telecommunications Holdings Pvt Ltd that owns an indirect 11% stake in Vodafone Essar.

Vodafone had opposed the merger, saying this could be misinterpreted as a fair market value for unlisted Vodafone Essar, India's second largest telecoms company by customers. "We have always believed that the fair market value of Vodafone Essar is higher than the underwritten value, and this is especially so in light of the recent stellar performance of the company," an Essar spokesperson said, adding that the verdict vindicated the company's stand that "Vodafone did not have any locus standi in relation to this merger as it was neither a shareholder nor a creditor of the relevant companies".

UK-headquartered Vodafone said it was "disappointed" that the Madras High Court did not feel it necessary to further investigate the merger. It said the verdict would not affect a separate deal to buy out Essar from the joint venture and was confident that the process would be "completed no later than November this year". Executives close to Essar also said despite the high court order it was too late for public shareholders of ISL to benefit from this decision as Vodafone had already announced it was buying out the Essar Group's one-third stake in its Indian JV.

The high court also struck down the opposition of the income-tax department to the merger. Rejecting Vodafone's plea against the merger, Justice Vinod Kumar Sharma said the company had no locus standi to file an objection. The agreement between Vodafone and Essar was formed in two parts: one, a put, or sell, option for 22% held by the Essar group overseas and, the other, a call, or buy, option for Vodafone to buy 11% stake the Essar group held in India.

Essar had the first right to exercise its option, but if it tendered its entire 22% stake, Vodafone's option would become valid. On Tuesday, Colao had told ET that it would not pay more than $5 billion for buying out the Ruias' 33% stake.

"Essar had two options: sell their entire stake for $5 billion as per the earlier agreement, or appoint an independent entity to arrive at a fair market valuation. That they choose the underwritten floor price proves they could not get a higher valuation (than $5 billion)," he had said. He also added that Ruias' seeking a higher price was a "psychological" tactic that all entrepreneurs employ during negotiations.

While Vodafone's announcement was aimed at ending months of bickering between the two partners and giving it complete ownership of the Indian entity, ET had recently reported the outbreak of peace was shortlived as both partners appeared to be headed for a new round of confrontation as the Ruias' were seeking to extract a higher price for its stake. Essar has also argued that its 11% stake held in India is being bought by Vodafone is subject to the Reserve Bank regulations.

The April 2010 RBI resolution, which sought to protect domestic companies from aggressive multinational buyers, mandates that Indian shares in privately held firms should be valued under the discounted cash flow method. Under this method, Essar's 11% stake in Vodafone Essar is worth $1.7-1.8 billion, compared with the purchase option that pegs it at $1.2 billion "RBI is also examining whether it would permit Vodafone to purchase these shares for $1.2 billion against the discounted cash flow valuation of $ 1.7 billion," one of the executives said.

The executives also said that both partners had "appointed Standard Chartered Bank, Goldman Sachs and UBS to determine a fair market value of Vodafone Essar, in advance of the put options, but the valuation exercise by the banks never actually got completed and Essar was forced to exercise the fixed price option as time was running out". They also objected to the Vodafone chief executive's announcement that the company was looking at its Indian operations by the year-end following the exit of its JV partner.

According to them, Essar last year pushed for listing Vodafone Essar but was unsuccessful as "Vodafone refused to dilute its its shareholding".

Via : Economic Times

[Karthik R 246]

Vodafone finds India tough going

New Delhi : When British mobile phone giant Vodafone paid $11.1 billion to buy an Indian cellular operator four years ago, it had high hopes the purchase would offset saturated markets at home.

"This kind of deal is what we all dreamed about when we were students," former chief executive Arun Sarin exulted after the company bought a 67 per cent controlling stake in the Indian firm then known as Hutchison Essar. But even though Vodafone has won tens of millions of new subscribers in the hyper-competitive Indian market, it has faced innumerable problems.

"Has India been a good case in terms of return on investment?" Vodafone global chief executive Vittorio Colao said on a visit this month to the country. "Unfortunately, the answer is no."

The Indian market soured for Vodafone, the world's biggest mobile firm by revenues, soon after its entry.

"For sure, the market has become tougher. Within a year of our acquisition, the rules were changed and six new (national) licences were issued. New players came into the market with very aggressive pricing," Colao said.

Vodafone had to write off $3.7 billion last year on its Indian investment after cut-throat competition among the more than dozen operators slashed calling tariffs to below one cent a minute.

Vodafone also spent $2.4 billion on buying third-generation (3G) licences to upgrade its services as the cost of spectrum skyrocketed.

And last month it said it would pay $5 billion to buy out its Indian partner, the Essar Group , seeking to end a fraught relationship.

On top of these expenditures, Vodafone is fighting a $2.5 billion tax bill after India's tax department said it should have withheld tax when paying for Hong Kong-based Hutchison Whampoa's stake in the Indian telecom company. The tax battle is being closely monitored by other foreign firms, which see it as setting a precedent for cross-border acquisitions in India. India's Supreme Court is due to pronounce its verdict in the case in July. Vodafone argues it did not need to withhold tax because the transaction took place in the Cayman Islands.

"Also, explain please to me why the buyer should be taxed? We have not sold an asset, we have bought an asset. We have not made a capital gain," a clearly irritated Colao said. The acquisition was part of Vodafone's push to lessen its dependence on Western markets, where mobile phone penetration is way over 100 per cent.

Mobile penetration in India, the world's fastest-growing cellular market and second largest after China, is about 60 per 100 people.

Report appeared on ET today.

[kesav 127]

"Has India been a good case in terms of return on investment?" Vodafone global chief executive Vittorio Colao said on a visit this month to the country. "Unfortunately, the answer is no."

Utter non-sense....

Sheer crocodile tears to put emotional pressure on the jury before the verdict.

Vodafone India is literally minting money in comparison with their any other operations in the world.

They keep on under quoting year after year to save spectrum charges and other levies....and also to create hypothesis of fear for new entrants....

[digitalnirvana 646]

They bought Hutch at way over price and now paying the penalty. http://www.123jump.com/market-analysis/Did-Vodafone-Overpay/20836/

[Karthik R 246]

Vodafone pays Rs 3,900 crore tax 'under protest', will contest tax demand in Essar deal in appellate forums

MUMBAI : British Telecom major Vodafone, which is currently disputing a $2-billion tax demand on its 2007 acquisition of Hutch-Essar, has paid Rs 3,900 crore as tax in India on another transaction with the Mumbai-based Essar.

The payment was done on the transaction in which Vodafone purchased the 33% held by Essar in March this year by paying the Indian conglomerate $5.4 billion. Tax authorities in Mumbai confirmed the payment adding that it has been done under protest.

Paying tax under protest means that the taxpayer company will contest the tax demand in the appellate forums meant for tax disputes and will be spared the interest liability if it loses the case. Contesting without paying the tax carries with it the risk of interest payments if the case is lost.

Both parties, Essar and Vodafone, believe that they do not have to pay any tax in India on the transaction.

Vodafone's approach this time is different from the stance it adopted in 2007 after buying Hutchison Whampoa's 67% in Hutch-Essar for $11.1 billion. The company did not deduct tax and claimed exemption on the grounds that it is an international transaction.

But the Indian tax department vigorously contested the case and the Bombay high court last year ruled against the British telecom major.

Vodafone appealed to the Supreme Court. The case is keenly watched by the global tax regime, largely because of the size of the demand and the implications for cross-border deals in case Vodafone loses the case. The decision will have a bearing on all the recent cross-border acquisitions involving Indian companies such as Idea Cellular, Sesa Goa and the case involving SABMiller's purchase of Foster's Indian assets.

An Essar source said that in case the tax dispute is finally resolved in favour of the companies, Vodafone/Essar, the amount paid to the tax department would go to Essar group.

Source : Economic Times

[rajanmehta 4,056]

Vodafone Wins Rs 11,000 Crore Tax Case >> http://economictimes...ow/11565473.cms

The Supreme Court on Friday set aside a Bombay High Court judgement asking Vodafone International Holding to pay income tax of Rs 11,000 crore on a deal abroad. In a big victory to Vodafone, apex court directed the tax department to return Rs 2,500 crore deposited by Vodafone in compliance of its interim order within two months.

Vodafone, challenging the tax bill over its $11 billion deal to buy Hutchison Whampoa Ltd's Indian mobile business in 2007, had appealed to the Supreme Court after losing the case in the Bombay High Court in 2010.

"The government has no jurisdiction over Vodafone's purchase of mobile assets in India as the transaction took place in Cayman Islands between HTIL & Vodafone," Chief Justice S.H. Kapadia said.

He said for the stability of economic operations, investors should know where they stand.

He said Hutch Essar, whose Indian operations were acquired by Vodafone, was not a fly-by-night operator and was in India since 1994 and had contributed Rs 20,242 crore by way of direct and indirect taxes.

Justice Kapadia delivered the majority judgment alone with Justice Swatanter Kumar. However, Justice K.S. Radhakrishnan differed with the judgment.

[admirer2000 100]

Over all loss for our Govt. =

1760,00000000 2G Scam (hope the figure / zeros are correct - 13 digit)

+

11000 Crores Vodofone

[csmart 472]

Its all setting. Had vodafone lost, foreign investment would have hit like anything. The govt. Is just fooling around. It had no option but to take matter till supreme court. This is all top level settings. Its done across the world. You can't go against west.

Sent from my SPH-D700 using Tapatalk

[rajanmehta 4,056]

Vodafone looking down the barrel at possible tax demands of thousands of crores again.

Because today's Union Budget has amended Section 9 of the Income Tax Act retrospectively from 1962.

This effectively overturns the supreme court judgement in Vodafone case.