Vodafone will pay US$11.1bn for a 67% stake in Hutchison Essar. It will sling an extra US$2bn in debt as part of a transaction that values the Indian operator at US$19bn.

The deal’s rapid completion came after domestic Indian heavyweights including Reliance, and Essar itself, balked at the size of the deal. Vodfafone must now operate under the threshold of foreign direct investment (FDI) restrictions that limit overseas ownership of Indian network assets to just 74%. Bullying Essar out of its stake may lead to consolidation or financial strengthening of the company, or a sale to one of the other key players with the aim of shrinking the market.

Vodafone is already present in the Indian market thanks to its US$800mn acquisition of 10% in rival cellular operator Bharti back in 2005. Vodafone may now mastermind a merger between these two holdings, having already hinted at network sharing and so on.

Arun Sarin, Chief Executive of Vodafone, said yesterday: “we are delighted to be deepening our involvement in the Indian mobile market with the full range of Vodafone’s products, services and brand. This announcement is clear evidence of how we are executing our strategy of developing our presence in emerging markets. We have concluded this transaction within our stated financial investment criteria and we are confident that this will prove to be an excellent investment for our shareholders.Hutch Essar is an impressive, well run company that will fit well into the Vodafone Group.”

Not all politicians in India welcome this degree of foreign involvement in the telecom sector. Seeking to protect a cellular market that is growing at the rate of six million new users per month, one can see why. Consolidation will only raise further objections where foreign investment coupled with anti-competitive behaviour is concerned.

The political and economic intrigue behind this deal puts one in mind of one haunting word.... ‘Bofors’.
Jim Chalmers