Essar is expected to swap about 11% of its domestic stake in Vodafone with India Securities, an Essar Group finance company. However, it is still in the process of evaluating the swap ratio for the deal.
About 74% stake in India Securities is held by Essar Capital. The board of India Securities had given approval for the share swap with Essar Telecommunication Holding and for the appointment of merchant bankers to determine the swap ratio in June, the company stated. The current market capitalisation of India Securities is around Rs 700 crore.
Essar is currently evaluating various options, including the 'put option' and fair market value for the 33% stake besides the IPO. Clearly, the 'put option' by Vodafone of $5 billion for its 33% stake is an option that the firm can exercise by May 2011. Accordingly, this puts the valuation of the 11% stake, to be swapped with India Securities, to be around $1.6 billion. Essar is trying to evaluate various options to raise funds. However, market may react differently considering the tough times that the telecom industry is facing. Swapping of shares will give an incremental value to the existing share price of India Securities, which would help the company gauge the market reaction before listing, analyst on conditions of anonymity said.
If Essar-Vodafone goes for listing, it is likely to be a mixed combination of divesting stake and issue of fresh equity. The firm is looking at an equity valuation of about $15-16 billion, according to banking sources. Vodafone had reported revenues of 954 million (about Rs 6,800 crore) and a subscriber base of 109 million at the end of June. An Essar Group spokesperson said, Vodafone IPO preliminary talks are on. There is no certainty on any time line. Bankers like UBS, Citi Global and Goldman Sachs are said to have made presentations. Alternatively, Essar could also exercise its put option for which Vodafone has agreed to pay $ 5 billion.