NEW DELHI: The Centre on Friday paved the way for the U.K.-based Vodafone to take control of Hutch-Essar Ltd. (HEL) with the Foreign Investment Promotion Board (FIPB) approving the British telecom major's application for buying a majority stake in the country's fourth-largest mobile operating services entity.

Vodafone, the largest mobile operator globally in terms of revenue, had picked up a controlling stake of 52 per cent in HEL from the Hong Kong-based Hutchison Telecom International (HTI) at a total enterprise value of more than $18 billion.

However, a controversy arose over the compliance level of the minority stakeholders in HEL as the equity holding norms in the telecom sector limit foreign direct investment (FDI) up to a maximum of 74 per cent.

Clearing Vodafone's application at its meeting here for the final approval by Finance Minister P. Chidambaram, the FIPB pointed out that the 15 per cent minority shareholding in HEL was neither owned nor controlled by foreign entities. This made the company fully compliant with FDI norms.

"We are fully satisfied with the compliance level...they have to comply with Press Note 3 of 2007 to remain in telecom sector,'' Ajay Dua, Secretary, Department of Industrial Policy and Promotion, told newspersons after the meeting of the board. "They [minority shareholders] will have to inform the Government as and when they sell their 15 per cent stake to a foreign player,'' he said.

At present, the 15 per cent equity stake in HEL is held by its Managing Director Asim Ghosh, the Max India chief, Analjit Singh, and IDFC, a financial institution. While giving its nod to Vodafone's application, the FIPB also noted that the Government should review the FDI policy, particularly pertaining to the telecom sector, so as to clearly define the "indirect shareholding'' pattern in companies.

In fact, such was the complexity in this particular FDI proposal that the Law Ministry also had to be consulted to ascertain compliance with the norms laid down. For the telecom sector, the FDI policy permits foreign ownership to the extent of 74 per cent. In the HEL case, although the Indian partner, the Essar group, holds a stake of 33 per cent in the company, a major chunk of 22 per cent is through companies registered overseas.

Of the balance majority holding of 67 per cent, HTIL directly held a stake of 52 per cent earlier while the remaining 15 per cent was also controlled by it through entities belonging to Mr. Ghosh, Mr Singh and IDFC.

Even as HTIL offloaded its 52 per cent stake to Vodafone in February this year, the controversy arose when it was alleged that the 15 per cent stake indirectly held by HTIL or its affiliates would continue after Vodafone's takeover.

However, the FIPB has made it clear that this 15 per cent stake is held by resident Indians and not by any foreign player.

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