Vodafone cuts holding in India unit paving way for possible IPO

Vodafone Group PLC said Wednesday that it has reduced its shareholding in its Indian operations to adhere to the nation's foreign direct investment rules, paving the way for a possible initial public offering of the unit.The world's biggest mobile operator by revenue said in a brief statement that Piramal Healthcare has agreed to buy a 5.5% stake in Vodafone Essar Ltd. for GBP400 million, reducing Vodafone's holding in the Indian unit to 69.8%.The widely expected sale was necessary to adhere to India' foreign direct investment rules that at least 26% of the business needs to be Indian-owned. Vodafone bought out Essar Group, its joint venture partner in Indian mobile phone group Vodafone-Essar Ltd. on July 1, after announcing the deal at the end of March, taking its direct ownership of the Indian company to 75.3%. The remainder is owned by entities that are majority-owned and controlled by Vodafone's other Indian partners, in which the U.K.-based company has minority interests.
Vodafone Chief Executive Vittorio Colao earlier this year said an IPO on the Mumbai bourse was "tempting" to extract value out of the business, but cautioned that a clear regulatory framework was needed first.Vodafone has had a difficult time in India since entering the market in 2007. The group is fighting Indian tax authorities over a demand for up to $2.5 billion related to a possible capital gains tax charge on the company's $11.2 billion purchase of Hutchison Whampoa Ltd.'s stake in what is now Vodafone Essar in 2007.The deal involved the sale of a Cayman Islands company owned by Hutchison to a Vodafone holding company in the Netherlands, so Vodafone claims no capital gains tax was due in India since neither company involved in the purchase was Indian. Vodafone also believes that even if tax were due in India, it is the seller, Hutchison, not the buyer that should pay.The case is being closely watched by foreign companies investing in India who are looking for clarity on the company's tax regime. Vodafone last year booked a GBP2.3 billion impairment charge on its operations in India amid tough competition and a fierce price war. At 1513 GMT, Vodafone shares were down 5 pence, or 3.2%, at 156 pence, valuing the company at GBP80.56 billion. The FTSE 100 index is down 2.7%.