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Vodafone India’s IPO Hinges on US$8 billion Question

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Vodafone India Ltd said it is impossible” to proceed with a proposed initial share sale until the government clarifies the price to extend licenses that may amount to as much as US$8 billion.

The fees that India’s second-largest mobile phone operator may have to pay could vary by GBP3 billion (US$4.8 billion) depending on how the government prices the permits, skewing the potential market value of the company, according to Chief Executive Officer Marten Pieters. The licenses are due for renewal from November 2014.

“It’s impossible to float the company if you have that kind of swing in your valuation,” Pieters, 59, said in an interview at Bloomberg’s Mumbai office. “We’d get a discount for all this uncertainty. Why as an owner would you want to sell it with a big discount?”

The government’s drive to boost airwave prices amid corruption allegations in awarding spectrum to some operators in 2008 may deter IPO investors, according to Naveen Kulkarni, an analyst at MF Global Sify Securities India Pvt. Mobile-phone companies including Vodafone, which has more users in India than the population of Japan, and Bharti Airtel Ltd are struggling to revive growth in a market where 13 competitors have driven call rates to a penny a minute.

“We’re still in a situation where regulatory uncertainty is the order of the day,” said Lawrence Sugarman, an analyst at Liberum Capital Ltd in London. “When you have that situation, and also such high reserve prices on the spectrum, the companies are going to be quite reluctant to invest.”

India’s cabinet decided August 4 that operators will have to pay a minimum of INR140 billion (US$2.5 billion) to buy wireless channels in the 1,800 megahertz band for the global system for mobile communications, or GSM, networks. That price is only 16 per cent lower than the winning rate of high-speed third-generation airwaves in a 2010 auction, Mumbai-based Goldman Sachs Group Inc analyst Sachin Salgaonkar wrote in a note to clients.

Vodafone’s parent Vodafone Group Plc, which acquired Hutchison Whampoa Ltd’s business in the world’s second-largest mobile-phone market in 2007 for US$10.7 billion, is also waiting to resolve a US$2.2 billion dispute with Indian tax authorities over the acquisition before selling shares, Chief Executive Officer Vittorio Colao said last year.

Indian companies have also deferred IPOs as growth in Asia’s third-largest economy slows. Just US$303 million of IPO deals have been completed this year, data compiled by Bloomberg show.

Pieters, who wants to sell shares “as soon as possible” does not need the IPO to finance the renewal of permits, which will be funded by Vodafone’s shareholders, he said. The unit, based in Mumbai, has invested INR510 billion in spectrum and networks in the nation in the last five years, he said. The company has a net debt of INR300 billion, Pieters said.

An IPO “would give them a better relationship with the regulators and authorities if there was a tie-in to the Indian population,” Liberum’s Sugarman said. “It’s good from a marketing perspective as well.”

Vodafone has permits for 900 megahertz airwaves in Mumbai and New Delhi that come up for renewal. The company has an option to extend the licenses by 10 years.

Source: Bloomberg

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