Vodafone objects Essars reverse listing of telecom holding firm

Vodafone has written to both BSE and Sebi to express its concerns regarding reverse listing of Essar Telecommunications Holdings which owns an indirect 11 per cent in Vodafone-Essar into India Securities Ltd and has asked for the matter to be examined, Vodafone said in a statement. Vodafone has acquired nearly 67 per cent stake while Essar has around 33 per cent equity in the joint venture.

According to Vodafone,there has been no disclosure to the shareholders of ISL on Vodafone Essar,which would become a substantial asset of ISL. Therefore,the investors in ISL have no basis on which to form a valuation judgement,it said. Vodafone has also served its objections on Essars counsel in the Madras High Court.

The transfer of 11 per cent stake held by Essar Telecommunications to ISL would allow shareholders of ISL to participate in Vodafone-Essar. Essar is doing so to get to know the fair market value of its 33.02 per cent stake,for which the company has the right to exercise the Put Option,a contract that gives the seller the right to sell a specified quantity of securities at an agreed price within a specified time period.

ETHPLs wholly-owned subsidiary has stated in its Information Memorandum of September 2009 and January 2010 that it would use the proceeds of the bonds secured against Essars Put Options to invest internationally in sectors such as coal,steel and refining. ISL has not disclosed this and these investments are contrary to ISLs stated investment intentions, Vodafone said.

Therefore,it is not clear what assets or liabilities ISL will have following the possible exercise of the Underwritten Put Option or the Fair Market Value Option issued to Essar in 2007,it said.

Vodafone said ISL is a highly illiquid vehicle and post-merger over 95 per cent of the shares will be under the control of the Essar Group and two other shareholders.