Vodafone To File For IPO. Essar Not Part Of It. New Changes?

With Essar abandoning the Vodafone- Essar Partnership, Vodafone India Limited [VIL] is one step closer to a partial stock market listing of its Indian operations. As Essar sold its stake in Vodafone India, Piramal Healthcare has bought it for a UK £ 385 Million cash! With just 5.5 per cent stake changing hands, the valuation of VIL now stands at UK 7 Billion. Though the Indian IPO can only be filed in early 2013, Vodafone has started the ground work & hired financial advisory firm & investment bank NM Rothschild to assist in its listing plans.

The Valuation at GBP 7 Billion is still pretty low but, Vodafone said Piramal could take part “in a potential initial public offering of VIL” or a sale of its stake to Vodafone. We assume the real reason why Vodafone has to have a partner is that under India’s strict foreign ownership rules, a foreign company simply cannot own 100 per cent of an Indian company or subsidiary. Hence, Vodafone must have a local partner. What this means is Vodafone wants Piramal to be an integral part of its IPO filing process & trusts Piramal Healthcare to have a strong backbone for it. This move appears to be a prelude to generate “value in the eventual IPO”.

Why just 5.5%? Well, the beauty of that number lies in the fact that Vodafone earlier bought Hutchison’s 67 per cent stake in its telecom venture with Essar. Last Year, it further bought out Essar’s 33 per cent stake. After consolidation it had a total of 75.35 per cent stake which is not permitted in the FDI rules whose upper limit is 74%. Hence, Piramal buying 5.5% is actually a strategic requirement!

What can one expect from the IPO filing? Even a partial IPO of Vodafone’s Indian business can potentially raise GBP 3.4 billion for a mere 30% stake. “Such a move would generate cash, potentially to be used to pursue in-market consolidation, and also put some of the ownership of the company into local Indian hands which could cause the regulators to take a slightly kinder view on the company for future matters,” said Sanford C Bernstein analyst Robin Bienenstock.

Vodafone has about 147 million subscribers in India, and broadly 17% of the Indian mobile market. With such high figures, it will surely do well in the listing, hope analysts. Vodafone is here to stay & grow & the IPO merely confirms the same. Hiring of the adviser can be seen as a pro-active step towards firming up capital-raising plans by handing out part of the company to the people of India.

While Vodafone gears up for the IPO, we believe clearing core issues like 3G allocation & improving Average Revenue Per User (ARPU) is vital to ensure profitable margin.

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