Vodafone plans IPO following $5bn deal with Essar on Indian JV

Vodafone has called an end to its fractious Indian joint venture with the Essar Group by paying $5 billion to acquire the 33 per cent held by Essar.

The company has had an uneasy relationship with Essar since it entered the Indian market in 2007 during its phase of rapid expansion into emerging markets. This move by Vodafone will give it direct ownership of 75 per cent of India's third-biggest operator, although the company will be forced by Indian foreign ownership rules to decrease its stake to 74 per cent.

Vodafone has confirmed that it is considering an IPO once the Essar transaction is completed in November 2011. According to a report in Money Control, a Vodafone spokesperson said: "We will go for an initial public offering (IPO) in the future. Once the put option is completed, Vodafone's direct equity stake in Vodafone Essar will increase from 42 per cent to about 75 per cent. This means we will have more control over the management of the company".

While Vodafone's intentions to control its India subsidiary have been well known, analysts believe the company will have to work hard to make a satisfactory return on its total investment of $16 billion in the country. India is the world's second biggest market for mobile services, and is adding around 19 million new users a month. However, the 15 operators have entered into a price war that has shrunk margins considerably over the past 18 months.

Vodafone's CEO, Vittorio Colao, has been quoted as describing the Indian telecom rules as nonsensical.

Speaking to Reuters India, Jagannadham Thunuguntla, head of research at the Indian stock exchange brokers SMC Global Securities, said: "After taking control of the operations, Vodafone will become more aggressive in this market and will be better prepared for the next wave of opportunities. After all this dust settles over the sector, [market leader] Bharti and Vodafone will be the two stable players...and will play a role in the sector consolidation."

Commenting on the wider picture - as reported by Marketwatch, the brokerage house Nomura Securities said that India was a key market for Vodafone to win investors' confidence. The firm has increased by 6 per cent its revenue growth forecasts for Vodafone's fiscal year 2012, with India "by far the largest contributor."

For more:
- see this Bloomberg article
- see this Reuters article
- see this Money Control article
- see this Market Watch article

Related Articles:
Rumour mill: Vodafone schemes buy-out of Indian partner
Vodafone results boosted by data; company promises new direction
Vodafone, Essar hire banks to assess Essar's stake in JV
Vodafone readies for India's post-auction shakeout

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