Vodafone mulls Indian IPO in 2012

British telecoms major Vodafone might come out with an initial public offer (IPO) of shares in India next year to meet local regulations that restrict foreign investment in the sector to 74 per cent.

Vittorio Colao, chief exceutive, Vodafone group, told the media that the company would definitely consider listing in India. ''We will need to replace 1.35 per cent stake in the company to be compliant to the foreign direct investment requirements of up to 74 per cent,'' said Colao. ''One possibility is the listing, which would give us a stronger sense of local roots.''

Vodafone currently has a little more than 42 per cent equity in the local operations, which is a joint venture with the Essar group. Vodafone will be paying $5 billion to acquire the 33-per cent stake owned by the Ruias of Essar.

The British group entered India in 2007, acquiring a controlling stake in what was then known as Hutchison Essar for $11 billion. It has over the years invested another $7 billion in the company, including $2.4 billion paid last year for acquiring 3G licenses.

Colao said the group may spend another $1 billion in India in the current fiscal. ''I am happy with the commercial success and the way our operations in India have been run,'' said the CEO. However, he admitted that the return on investment had not been good. ''But we are here to stay for another 50 years, if we do not get too many slaps,'' he added, referring to the $2.6 billion tax claim slapped on it by the Indian tax authorities.

The tax department slapped a claim of $2.6 billion - which includes taxes and interest on tax - for having failed to withhold tax from Hutchison Whampoa Ltd, after paying it $11.2 billion for acquiring a controlling stake in Hutchison Essar. The tax department also imposed a penalty on Vodafone for failing to withhold the tax. It claims that capital gains tax was not paid on the deal.

Vodafone, however, argues that the seller has to pay the capital gains tax and not the buyer, and India should recover the tax from Hutchison Whampoa. It also claims that since the deal involved foreign companies - both are registered outside India - it did not have to withhold the tax. The company has appealed to the Indian Supreme Court.