Piramal Healthcare on Thursday said its 5.5 per cent stake
purchase in Vodafone Essar was a financial investment and it might sell the stake for a return of up to 20 per cent, possibly through an IPO, within the next two years.
"We are acquiring a 5.5 minority stake in Vodafone Essar for Rs. 2,856 crore (Rs. 28.56 billion). It is a minority stake," Piramal Healthcare Chairman Ajay Piramal told reporters, adding that the company would not take a board seat.
The Piramal-led company had announced the purchase of a 5.5 per cent stake in Vodafone Essar for $640 million and an expected return of 20 per cent would be worth $128 million.
Hinting at a possible sale of this stake, Piramal said: "You heard Vodafone talking about IPO (in the past)... Therefore, we are assuming that this IPO will take place anywhere in the next 12-24 months.
"This is where we could participate in or we could participate with Vodafone and get an expected return.
"Somewhere, we believe, (return) should be in the range of 17-20 per cent," he said.
"The Vodafone deal is a strategy
to deliver superior return from our surplus return," Piramal added.
After announcing a deal to buy out its partner Essar Group in the venture, UK-based Vodafone had said it might consider an IPO of the Indian telecom company to keep its stake within the permitted foreign stakeholding limit of 74 per cent.
The Piramal transaction would reduce Vodafone's holding in the Indian unit to 69.8 per cent. The widely expected sale was necessary to adhere to foreign direct investment norms for at least 26 per cent of the telecom company to be Indian-owned.
The deal announcement comes more than a month after Vodafone reached a settlement with Essar over the latter's 33 per cent in the joint venture.
On July 1, Vodafone announced that it would pay $5.46 billion, as against $5 billion decided earlier, for purchasing a 33 per cent from Essar in their joint venture
Vodafone Essar Ltd.
The purchase of Essar's 33 per cent was increasing Vodafone's stake in VEL to 75.35 per cent, which was higher than the FDI limit of 74 per cent.
Vodafone has had a tough time in India since entering the market in 2007.
The company is also locked in a legal battle with Indian tax authorities over a $2 billion tax demand on its acquisition of the 67 per cent stake of Hutchison in Hutchison-Essar for over $11 billion.