The former Chief Executive Officer of Vodafone Essar Ltd (VEL), Mr Asim Ghosh, had sold the equity stake held by him in the mobile company before he shifted base to Canada.

While it is not clear as to who has bought his shares, Infrastructure Development Finance Company and Mr Analjit Singh, Chairman of Max India Ltd, will be the only two Indian investors in the mobile services company after the Essar Group exits by November.

Responding to an e-mailed question, Vodafone Plc Group spokesperson, Mr Simon Gordon, wrote, “Asim Ghosh sold his interests in VEL before he moved to Canada. Our current partners in India other than the Essar Group are Mr Analjit Singh and IDFC.”

According to Vodafone Plc, Mr Singh and IDFC together hold a little over 24 per cent stake in VEL.

Until now, it was widely believed that Mr Ghosh held a minority stake in VEL through various companies incorporated in India. In December 2009, Mr Ghosh had sold 2.29 per cent stake in the company leaving him with another 2.39 per cent.

Though Mr Ghosh holds a Canadian passport, the equity stake held by him in VEL was considered as Indian holding since he was living in India as its CEO.

The FDI factor

But now that he has moved back to Canada, his stake would have been considered as foreign, according to the Foreign Direct Investment Guidelines.

FDI rules governing the telecom sector limitforeign investment to 74 per cent. In Vodafone Essar's case, there are doubts whether this FDI cap will be breached once the UK-based company acquires the 33 per cent stake held by the Essar Group.

Vodafone already owns about 42 per cent stake in VEL and Essar's stake will take its direct holding to 75 per cent – one percentage point higher than the FDI cap. Mr Ghosh's equity would have only added to the FDI pie.

With his exit, Vodafone will now have to worry only about parking the 1 per cent share to meet the FDI norms.

IDFC issue

But, there could be an issue with the IDFC holding too. More than 50 per cent in IDFC is held by foreign investors. According to the FDI guidelines, if the investing company is owned or controlled by ‘non-resident entities', the entire investment by the investing company in a Indian company will be considered as foreign investment. So, the equity held by IDFC could be considered as foreign. In that case, Vodafone will have to find a new Indian partner.

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