Vodafone bets on India subsidiary, amid liberalised telecoms rules

Vodafone is preparing to invest as much as $2 billion to buy out minority shareholders in its Indian business, becoming the first company to take advantage of new rules liberalizing foreign ownership of telecoms group in Asia’s third-largest economy.

The telecom giant group will file an application this month to India’s foreign investment promotion board, a government body, to win permission for the investment, said two people familiar with the situation.

In July, the country liberalized telecoms rules to allow foreign businesses to fully own their subsidiaries, using the strategy designed to attract foreign capital.

Vodafone’s move makes it the latest multinational to see long term potential in the Indian market, despite the company’s history of regulatory and legal disagreements with India’s government, including a still-unresolved $2.6 billion tax dispute.

Vodafone owns about 64% of Vodafone India, as 11% is held by billionaire industrialist Ajay Piramal. The remaining 25% is controlled by undisclosed minority shareholders, who are understood to include Vodafone India’s chairman.

Mr Piramal told the Financial Times that he planned to sell his stake back to Vodafone by early next year. “There has always been talk that the FDI limit could go up . . . and so it now looks like [the stake sale] will be done under the new FDI rules,” he said, cited by Financial Times.

Vodafone is considering an initial investment of up to $2 billion to buy out some of the minority investors, including Mr Piramal, said people familiar with the process.

The investment of $2 billion would not be enough for Vodafone to control 100% of its India subsidiary.

Vodafone first entered India in 2007, paying $10.9 billion for a 67% of Hutchison Essar, a joint venture with India’s Essar conglomerate. It is now India’s second-largest telecoms group by revenue. Vodafone India earned $5.7 billion in revenue during the last financial year, and made an operating profit of $1.7 billion.

The current consensus among 27 polled investment analysts is to hold stock in Vodafone Group PLC. This rating has held steady since September, when it was downgraded from a “buy” rating.