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Life after Liberty

10 November 2015 By Una Galani

Vodafone’s planned India spinoff is a banker’s Bollywood dream. The mobile giant has taken a step towards listing the division, which might be worth $14 billion, according to calculations by Reuters Breakingviews. Assume Vodafone floats a quarter of the business, it could be India’s largest-ever initial public offering.

With over 180 million subscribers, Vodafone India generated 660 million pounds of EBITDA in the first half of this fiscal year. Say for the rest of the year it can match that. If it can achieve the same seven times forward earnings multiple as No. 4 player Reliance Communications, backed by billionaire Anil Ambani, Vodafone India could be worth 9.2 billion pounds, or $14 billion. That’s 11 percent of Vodafone’s enterprise value of 81.6 billion pounds as of Nov. 10.

A listing of one-quarter of the shares would at $3.5 billion be more than what Coal India raised when it was partially privatised by the government in 2010. The biggest IPO to come out of the private sector was by Reliance Power, another Ambani company, which raised just $2.9 billion in 2008.

There are two things to consider. First, timing. A new entrant, Reliance Jio, backed by Anil Ambani’s older brother Mukesh, will start to offer super-fast data services in early 2016, potentially leading to a price war. Potentially costly spectrum auctions add unknowns.

Another thorny issue is tax. Vodafone has for years been trying to resolve a $2 billion-plus dispute with India’s tax authorities which claim the mobile giant owes capital gains on its purchase of Hutchison Essar in 2007. Vodafone has taken the issue to international arbitration. If it isn’t settled soon, Vodafone will have to account for it in any IPO.

For Vodafone, though, a listing might help to excite its own investors after talks to swap some of its assets in Europe with Liberty Global, the continent’s biggest cable operator, fell apart. Drawing attention to the fast-growing India unit relative to its more mature markets could help juice up Vodafone’s overall valuation. That would make breaking new ground in India worthwhile.


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