British telecom major Vodafone on Friday said it had made an adjustment to the tune of Rs 3,400 crore in its fair market value to account for the payment it has made for 3G licences. This will be the additional amount payable to Essar, the 33 per cent shareholder in the company's Indian operations, if Essar opts for an independent valuation of its stake while exercising its put option.
Vodafone acquired Hong Kong-based Hutchison Telecommunications' stake in Hutchison Essar in 2007 for $11.2 billion. According to the agreement, Essar has a put option, where it can exit the joint venture in the third or fourth year, and there are two options available for Essar. The put option window has kicked in from May 2010 and will continue till May 2011.
According to the first option, if Essar decides to sell out completely to Vodafone, it gets a pre-determined amount of $5 billion, irrespective of its market price. The second option says that if Essar decides to sell its shares worth between $1 billion and $5 billion to Vodafone, then the valuation will be "independently appraised" by independent valuers based on the fair market price.
Vodafone has now provided a Rs 3,400 crore top-up if Essar opts for the second option, in addition to the amount decided by the independent valuation. If Essar were to pursue any of the above two options, then it can only do so within May 8, 2010 to May 8, 2011. The put option window is currently open.
Sources say the decision to revise the floor price was triggered by the aggressive bidding by Vodafone for the 3G licences. Vodafone won 3G licences in nine circles, including Delhi, Mumbai, Kolkata and Chennai, by paying Rs 11,617 crore as the total price.
Essar, known to have preferred a more conservative approach to 3G bidding, was concerned about the high leverage on Vodafone Essar's books, which it believed would be counter-productive, especially "during the put option window", as it would depress the equity value of the joint venture and its 33 per cent stake.
India 'cash positive'
Service revenues from India increased 26.4 per cent to £954 million (Rs 6,868 crore) in the quarter ended June, compared to £755 million (Rs 5,436 crore) in the same quarter last year. Service revenue growth also includes a 1.5 percentage point benefit from Indus Towers, which is a combined tower subsidiary of three major telecom operators in India, including Bharti Airtel and Idea.
Vodafone Group today reported a 4.8 per cent jump in revenues at £11.3 billion for the April-June quarter, boosted by strong performance in emerging markets like India and Turkey. In the year-ago period, the company had a revenue of £10.74 billion, Vodafone said in a statement here.
Vittorio Colao, the chief executive of Vodafone, said the company had seen strong growth in emerging markets, and India had now become cash positive at an operating level. India contributed around 80 per cent of the Asia-Pacific and West Asian region's organic service revenue growth.
"Growth was driven by an increase in the customer base, with net additions for the quarter of 8.2 million, and increased usage per customer, partially offset by ongoing competitive pressure on mobile voice pricing," the company said in a press release. Vodafone also said its Indian operations saw an annual mobilised customer churn at 38.8 per cent.
