Vodafone versus Essar: who will prove right?

An irate Vodafone Plc  has moved the Securities and Exchange Board of India and the Bombay Stock Exchange against the Ruias-run Essar Group's plans to reverse list its subsidiary Essar Telecom Holdings Pvt Ltd (ETHPL) by merging it with listed unit India Securities Ltd (ISL). Domain-B gives a rundown of the events.

The trouble erupted on 18 January, after British telecom major Vodafone objected to Essar's plans to reverse list ETHPL into (ISL), alleging that ISL's value may be ''inaccurately'' used to calculate the value of unlisted Vodafone Essar.

Vodafone holds a 67-per cent stake in GSM service provider Vodafone Essar, while Essar holds the remaining through ISL. Recently, Essar had transferred ETHPL's 11 per cent stake to ISL, a company listed on Indian stock exchanges.

In its statement to BSE, Vodafone said it does not wish a company in which it holds a majority interest to become the subject of a ''false market''. It also said Vodafone is concerned that the value of ISL could be misinterpreted as a ''fair market value'' of Vodafone Essar.

Vodafone also alleged that 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 also said that according to the information memorandums (September 2009 and January 2010), ETHPL stated that it would use the proceeds of the bonds secured against Essar's put options to invest internationally in sectors like coal, steel and refining. ISL has not disclosed this, and these investments are contrary to ISL's stated investment intentions.