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Vodafone calling buyers for its stake in Bharti Airtel
Vodafone Group has hung the ‘For Sale’ sign on its 4.39% indirect holding in Bharti Airtel, a move that could fetch it up to $2 billion and have a serious bearing on the ownership of India’s largest telecom company.

The British firm, the world’s largest mobile operator by revenues, bought a 10% stake in Bharti — its biggest rival in India — in 2005, but sold nearly half of that after it entered the Indian market on its own in 2007.

“No company will be happy with a small minority stake in another entity. If anybody is interested in buying our stake, we are for it,” Vodafone’s chief executive Vittorio Colao told ET on Friday.

Vodafone’s decision presents both Bharti founder Sunil Mittal’s family and Singapore Telecom an opportunity to emerge as the largest shareholder in the company, the most profitable among Indian telecom operators. The Mittals hold less than 30% stake in the company now, while SingTel is the largest shareholder with about 30.5%. SingTel’s stake is set to touch 32% after a deal last month for another 1.52% indirect stake.

Vodafone’s stake in Bharti could be worth around Rs 5,500 crore at current valuations, but if last month’s deal — that saw SingTel buy the 1.52% for Rs 3,008 crore — is any yardstick, the stake could fetch Vodafone as much as Rs 8,700 crore.

Mr Colao declined to say on if Vodafone had held talks with prospective buyers and also refused to comment on the speculation that SingTel was interested in buying Vodafone’s stake in Bharti.

Vodafone owns 10% in Bharti Telecom, the unlisted holding company of Bharti Airtel, a holding that effectively gives it an indirect control of 4.39% in Airtel. Vodafone had acquired just under 10% stake in Bharti Airtel in 2005 for $1.5 billion — 5.6% stake directly in Bharti Airtel and 4.39% through Bharti Telecom.

In 2007 May, when it acquired a majority stake in Hutchison Essar, now Vodafone Essar, it sold its direct holding in Bharti Airtel to the Indian promoters for $1.6 billion. However, it held on to the indirect holding, saying it would retain it as an asset.

Vodafone would also consider listing its Indian arm, Vodafone Essar, after 2010, said Mr Colao, 48, who succeeded India-born Arun Sarin as CEO last July.

“Listing is one of the many possibilities, and it is a positive thing to do,” he said. Vodafone recently listed its operations in South Africa.

Vodafone’s plans to list its Indian arm will depend on whether the Ruias of the Essar Group, who own a 33% stake in the Indian entity, decide to exercise an option to sell their entire 33% stake to Vodafone for $5 billion between May 2010 and mid-2011. “They (the Ruias) have a one-year window and the listing will depend on when and how much of the put option is exercised,” he said.

Vodafone is also fighting a potential $2-billion tax claim by the income-tax department over its purchase of Hutchison Telecom’s stake in its Indian subsidiary for $11.2 billion. Last month, Vodafone sought an extension to file its response to the showcause notice issued to it by the tax department.

Mr Colao said he was confident that the telco was not liable to pay tax on the 2007 deal. Vodafone has always maintained that the share purchase did not amount to transfer of capital assets, which could be taxed.

“We are the buyer and capital gains tax cannot be imposed on the buyer. The transaction took place between two foreign entities and, therefore, cannot be taxed here. Any tax on us will also have a huge political impact,” he said.

Vodafone has invested around $5 billion since acquiring the stake in its Indian operations, Mr Colao said, adding that any adverse decision on tax would send wrong signals to other foreign companies in India.

Mr Colao said Vodafone was not concerned about the ongoing tariff war in the Indian market, which has hit revenues and profits of all telecom companies. The steep tariff cuts resulted in a 7% fall in Vodafone Essar’s revenues for the quarter-ended September 09.

“My brief to the India team is to ensure that no competitor undercuts us. If any company cuts prices, just follow it is what I have told the team here,” he said.

Mr Colao said Vodafone held a long-term view of the Indian market and expressed confidence that the company would eventually surmount its present problems, as the Indian mobile market was set to see a spate of consolidation activity. He said five to six operators are sufficient to ensure high levels of competition in any market.

The Indian market has some 13 mobile phone firms jostling for space now, and three more are due to launch services next year, portending fiercer battles to win and keep customers. India currently has some 500 million wireless subscribers.

Vodafone said it could participate in the consolidation activity. “We can be a buyer, aggregator or supporter to consolidation. But, for this to happen, India must have favourable M&A policies,” Mr Colao said.

He said Vodafone was excited about the prospects for third-generation services in India, but did not reveal if Vodafone would bid for 3G spectrum in all the 22 circles. The auctions for 3G spectrum, vital to offer high-end services such as video conferencing and ultra-fast internet on the mobile, are scheduled to be held on January 10.

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