Vodafone Essar Invites Bids From Investment Banks For Possible IPO - Bankers

By John Satish Kumar Of DOW JONES NEWSWIRES MUMBAI (Dow Jones)--Vodafone Essar Ltd., a joint venture between Vodafone Group PLC (VOD.LN) and India's Essar Group, has invited bids from investment banks for a possible initial public offering which could hit the markets in the next one year or so, four bankers with direct knowledge in the matter said Monday. Essar is considering selling a part or all its stake via the IPO, the bankers told Dow Jones Newswires, asking not to be named. Essar controls 33% and Vodafone Group owns 67% of the mobile-phone operator that has more than 106.34 million customers across India. All the four bankers are directly involved in the process to bid for a mandate to manage the IPO. They, however, said the extent of stake dilution being considered isn't clear yet. Two of the bankers said the bidding process has already begun and will continue into the week. Essar Group spokesman Manish Kedia declined to comment on the matter. A Vodafone spokesperson didn't want to comment. "After the 3G auctions, telecom companies are cash-strapped and that's possibly why they are looking to raise capital," said one of the bankers, whose bank has been invited to take part in the bid. The banker was referring to the Indian government's bandwidth auctions for third-generation mobile telephony services. The recent auction raked in a larger-than-expected $14.6 billion for the government, but saddled telecom companies with massive debt. Vodafone Essar spent INR116.18 billion ($2.47 billion) to win bandwidth in nine service areas, including Mumbai and Delhi. The company also needs funds to expand in the world's fastest-growing telecom market, which has between nine and 14 players in each of the 22 service areas. Vodafone Group, in fact, recently took a GBP2.3 billion impairment charge on its Indian operations due to the stiff competition and fierce price war in the country. In 2007, U.K.-based Vodafone bought a 67% stake in Hutchison Essar Ltd. for $11.2 billion from Hutchison Telecommunications International Ltd. Hutchison Essar was then renamed Vodafone Essar. Vodafone also then signed a pact with Essar--a major shareholder in Hutchison Essar--under which Essar has a put option for its stake, which it can sell to Vodafone for $5 billion, or at a market-determined price, whichever is higher. But, according to Indian regulations a foreign entity can't hold more than 74% in a local telecommunications company, and so, Essar can't sell its entire stake to Vodafone Group. Essar has until May 2011 to exercise its put option for its holding in Vodafone Essar. "Essar is betting it'll get a higher valuation for its stake via an IPO," said a second banker, who is part of the bidding process. -By John Satish Kumar, Dow Jones Newswires; +91-22-6145-6118; john.kumar@dowjones.com (END) Dow Jones Newswires July 19, 2010 11:00 ET (15:00 GMT)