FIPB to probe Vodafone's call options

Opening another line of inquiry into the Hutch-Essar shareholding structure, the Foreign Investment Promotion Board (FIPB) is looking into the call options that would together give Vodafone a further 15.03 per cent proportionate indirect equity ownership in India's fourth-largest mobile operator.

The Hutch-Essar deal with Vodafone is being looked into by other agencies including the RBI and the Joint Intelligence Committee.

The Reserve Bank of India has said the transactions involving the holding of Hutch-Essar shares by Analjit Singh and Asim Ghosh need to be examined further on the grounds of "circumvention of the external commercial borrowing guidelines under the Foreign Exchange Management Act".

At the last meeting of the FIPB on March 29, the government asked for a copy of the loan agreement, which is the basis of share acquisition worth $630 million.

In two separate letters on March 19 and March 27, Vodafone informed the FIPB that it was aware of the fact that the options it purchased (equivalent to a 15.05 per cent proportionate indirect equity ownership of Hutch-Essar Ltd) could not be exercised within the existing shareholder structure.

The letters were in reply to the FIPB asking the company to clarify certain aspects of its proposed acquisition of Hutch-Essar, including the variation between its press announcement that said that it had acquired 67 per cent economic interest in Hutch-Essar for $11.08 billion, and its subsequent disclosure to regulatory authorities overseas that it had acquired 52 per cent stake in the company.

In the second letter, Vodafone has clarified that its bid price of $11.08 billion was for 52 per cent plus non-voting, non-convertible, redeemable preference shares in two Hutch-Essar promoter companies (Telecom Investments India (TII) and Jaykay Finholding), debt of $630 billion and call options to purchase (and enhance at par value) in the future, shares in TII and Omega Telecom.

Once exercised, these options would give it the additional 15.03 proportionate indirect equity ownership in Hutch-Essar. Vodafone has also said that in reaching the bid price of $11.08 billion, it did not put an individual price on each of the four components.

It added that its approach, in making the offer to HTIL, was to look at assets, liabilities and other intangible factors and to assess the total value.

Vodafone has also reiterated that its accounts, prepared according to the international financial reporting standards, would show its aggregate shareholding in Hutch-Essar at around 67 per cent.