Vodafone wants full control at low value: Essar

Ruias-led Essar Group on Friday launched a scathing attack on Vodafone saying that the British company is trying to gain 100 per cent control of the telecom JV Vodafone-Essar at an "artificially depressed value".

A day after Vodafone complained to market regulator Sebi to probe allegations of insider trading in India Securities Limited, a listed company of Essar group, Ruias said the British company's allegations are baseless.

Essar has proposed to merge Essar Telecommications Holdings Private Limited (ETHPL), which has 11 per cent stake in Vodafone-Essar, with India Securities Limited in order to find out Fair Market Value of its stake in the joint venture.

Vodafone-Essar is the third largest telecom operator in India with over 124 million mobile subscribers. Vodafone had bought nearly 67 per cent stake from Hutchison in 2007 while Essar holds the remaining stake.

"The merger scheme between India Securities Ltd and ETHPL is fully compliant with all applicable Indian laws, capital and financial sector regulations," Essar said in a statement.

Vodafone, which has sought to intervene in the proceedings governing the merger scheme in the Madras High Court, is neither a shareholder nor a creditor of any of these companies and has no legal capacity to challenge this merger, it said.

Vodafone had objected to the merger saying it would distort the valuation of the joint venture. "It's (Vodafone's) objections to the merger are motivated and factually incorrect. The purpose behind raising these objections is to prevent the discovery of the fair market value of Vodafone-Essar, as envisaged in the agreements between Vodafone and Essar," Essar said.

Last year when the Essar group wanted to list Vodafone Essar by offering its shares through an Initial Public Offer, Vodafone ensured that the IPO did not go through and no market value could be established, Essar said.

Vodafone, Ruias said, is attempting to force Essar out of joint venture (JV) and own 100 per cent of the Vodafone-Essar at an artificially depressed value.  The court process is being sought to be abused through the attempt to intervene and file objections.

The fair market value under agreements with Vodafone has to be determined by three international investment banks. If the market value being discovered by the merger were to be manipulated and artificial, as Vodafone claims, the investment banks would naturally ignore that value when making their determination, Essar said.

"The investment banks are under no obligation to use the listed value alone. If, on the other hand, as we believe, the market value being discovered is fair and reasonable then naturally the banks would take that into account," it added.

Vodafone is trying to divert attention from crucial issues and has, therefore, levelled baseless allegations of insider trading and inadequate disclosure, Essar said.

Under the agreements with Vodafone, Essar has two options first, it can choose to sell its entire shareholding to Vodafone for $ 5 billion or second, it can choose to sell part of its shareholding at the fair market value.

"All that Essar is interested in doing is to enable the discovery of the true market value of the company so it can make a proper choice as it is entitled to do under its agreements with Vodafone," it said.