VODAFONE yesterday said it would pay $5bn (£3.1bn) to buy Essar out of its Indian mobile phone venture, paving the way for a potential IPO of the business.
Essar said it was selling its 33 per cent stake for $5bn in cash after exercising its put and call options.
The deal, which tidies up Vodafone-Essar’s ownership structure, puts an end to the partnership between the British mobile giant and Indian conglomerate.
Vodafone is now likely to pursue an IPO of part of the business.?It has not yet appointed bankers but City A.M. understands the listing would likely take place on the Mumbai stock exchange.
Vodafone will own 75 per cent of the firm once the deal is completed in November, but will have to sell off 1.4 per cent of that stake to comply with Indian rules on foreign ownership. The remaining 24.6 per cent is already held by local companies.
The $5bn cash payment is already included in Vodafone’s net debt, which stood at £30.5bn in September, and Moody’s said the firm’s rating was unchanged following news of the deal.
“It was expected,” Execution analyst Will Draper said. “It tidies up the stake, gives Vodafone 100 per cent control and it’s one less thing to worry about in India.”
Analysts said the deal also made sense for Essar, one of India’s largest business houses with holdings from energy to steel, which can extract a good price from a tough sector.
“After taking control of the operations, Vodafone will become more aggressive in this market,” said Jagannadham Thunuguntla, head of research at SMC Global Securities.