Vodafone to boost stake in India's Bharti

Vodafone gets government approval to increase its stake in Indian network operator Bharti Tele-Ventures.

British mobile network operator Vodafone Group has received approval from India's Finance Minister, P. Chidambaram, to buy up to 49 percent of the equity of Bharti Enterprises in Delhi, the holding company for Bharti Tele-Ventures, a large mobile and fixed line telephone operator. The Indian government has to approve foreign investment in telecommunications companies.

Executives at Bharti Enterprises were not immediately available for comment, but sources close to the situation said that the approval was only an enabler, and did not signify that Bharti Enterprises had agreed to a new investment proposal from Vodafone. Bharti Enterprises is closely held by the promoter family.

Vodafone will be an equity holder in Bharti Enterprises through a Vodafone subsidiary, Vodafone Mauritius, according to a news release issued Thursday by India's Finance Ministry.

By applying to the Indian government for approval, Vodafone is clearing the decks for a buy-out of equity in Bharti Enterprises, said Puneeth Punja, principal analyst for telecommunications at Gartner, a research company in Stamford, Connecticut. "We see it as a signal of their intention, and their interest in the Indian market," he said.

More difficult for Vodafone will be to get the promoters of Bharti Enterprises or Singapore Telecommunications (SingTel), which has a stake in Bharti Enterprises and subsidiary companies, to sell their stakes to Vodafone. Both the promoters and SingTel have already stated that they are not interested in selling their stakes in the company, Punja said.

To stay within the limit of 74 percent foreign equity in telecommunications companies allowed by the Indian government, Vodafone will have to try to get SingTel to sell its stake, Punja said. SingTel has investments in service providers in other Asian countries, but its investment in Bharti is by far the best because the Indian market is growing very fast, Punja said.

Vodafone announced last month that it would acquire 10 percent of Bharti Tele-Ventures for 66.56 billion rupees (US$1.48 billion). Under the terms of the deal, Vodafone would acquire a 4.39 percent economic interest in Bharti Tele-Ventures through Bharti Group holding company Bharti Enterprises, and a 5.61 percent direct interest in Bharti Tele-Ventures from investment firm Warburg Pincus, the company said last month.

Vodafone is likely to want to increase its stake in Bharti Enterprises to give it a stronger position in the Indian telecommunications market, analysts had said after the announcement last month.

The Indian government has also recently amended the rules to allow up to 74 percent foreign equity in telecommunications services companies. The previous limit was 49 percent.

Bharti Enterprises in Delhi maintains a controlling interest of 45.9 percent in Bharti Tele-Ventures through its subsidiary Bharti Telecom. An increased stake in Bharti Enterprises will thus give Vodafone a larger beneficial stake in Bharti Tele-Ventures.

Vodafone is returning to the Indian market after two years' absence. The company announced in June 2003 that it had sold its 20.76 percent stake in a small regional mobile services operator in the country, as it did not offer it a strong-enough position in the country.

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