More hurdles for Vodafone

If Vodafone chief executive Arun Sarin thought his biggest problem lay in getting the Ruia brothers who control 33% in Hutch Essar to agree, he is sadly mistaken. Despite graduating from IIT Kharagpur, he seems to have forgotten about the power of the Indian bureaucracy. That's clearly visible as the Foreign Investment Promotion Board (FIPB), the Reserve Bank of India, the law and commerce ministries want to know clear details on the shareholding in Hutch Essar.
The problem relates to the 15% held by Hutch Essar managing director Asim Ghosh, Max India's Analjit Singh and the IDFC in Hutch Essar. Under the government of India norms,foreign investment in telecom is capped at 74%. Vodafone has picked up Hutchison Telecommunication International Ltd (HTIL)52%. Of the 33% held by the Essar group, 22% is brought in from Mauritius. That itself adds up to 74%.
Hutch officials claim it has a 52% stake in the company but an economic interest of 67% including the equity held by Ghosh, Singh and IDFC. Now, where has that come from? The FIPB has sought details from Ghosh on how he funded the acquisition of the stake. That should be interesting.
But, what one must remember is that Hutch has all along violated the foreign investment norms. So, what can Vodafone do now? For starters it could convince the Ruia brothers to move the 22% holding from Mauritius to India. But, that will cost money. Will the Vodafone board agree? This once should prove interesting.