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Ending year-long battle, UK-based Vodafone has agreed to pay USD 400 million more to its Indian partner Essar for buying its 33 percent stake in the joint venture Vodafone-Essar. With this, Essar closed the deal to sell its 33 percent stake at USD 5.46 billion as against USD 5 billion decided earlier.

Vodafone, whose holding in the venture would increase to 75.35 percent, said it would transfer 1.35 percent stake to an Indian investor to remain compliant with the existing FDI norms in the telecom sector. The existing FDI limit is 74 percent.

Further, the parties have agreed that all outstanding claims between them stand terminated, and that all future claims have been renounced, Vodafone said in a statement.

It added that both have also agreed to cooperate fully in seeking regulatory approvals necessary for the completion of these transactions.

Essar had held 22 percent stake in the joint venture through its Mauritian arm and the remaining 11 percent through an Indian subsidiary.

“Under the agreements signed in Port Louis, Mauritius, Vodaofone has made a net payment of USD 3.32 billion, after deduction of withholding tax of USD 0.88 billion,” Essar said in a statement on Friday.

Vodafone and Essar have paid the tax even as both the parties continue to believe that no tax is due on this transfer.

It was viewed as prudent to deduct and pay withholding tax on a without prejudice basis and they would claim a refund after following due process.

With this the 22 percent stake works out to be USD 4.2 billion as against USD 3.8 billion decided earlier. The shares have been transfered to Vodafone.

Similarly, the value for the 11 percent stake held by Essar through Essar Communications Holdings Limited has now been revised to USD 1.26 billion compared to USD 1.20 billion decided earlier.

The transfer of shares would be completed after obtaining all necessary approvals expectedly by 15th February 2012.

Commenting on the deal, which has given over USD 400 million dollars extra to Ruias, Essar Group Chairman Shashi Ruia said, “We were one of the early entrants in the telecom space in 1995 and we are really pleased that Vodafone-Essar has grown to become one of the premier telecom companies in the country with over 140 million subscribers.”

“We have also enjoyed an extremely successful relationship with Vodafone and wish them success in the future.”

The extra burden of USD 400 million comes at a time when the British telecom giant is fighting another legal battle with the Indian tax authorities. It faces a tax liability of USD 2.6 billion on its deal in 2007.

Following regulatory approval and subsequent closing of these transactions, Vodafone will own 74 percent via its subsidiaries.

The remaining 26 percent of the joint venture will be majority-owned and controlled by Indian shareholders.

Further, the parties have agreed that all outstanding claims between them are terminated, and that all future claims have been renounced, Vodafone said in a statement.

The firms have also agreed to cooperate fully in seeking all regulatory approvals necessary for the completion of these transactions.

“Essar Communications (Mauritius) and ETHL Communications Holdings contractual rights in respect of Vodafone Essar under their prior agreements with Vodafone have terminated, and both have relinquished all of their board seats in Vodafone-Essar Limited (VEL),” it said.

It is expected that 1.35 percent of the shares in VEL will be transferred to an Indian investor to ensure Vodafones continued compliance with Indian foreign direct investment rules, the statement added.

Following regulatory approval and subsequent closing of these transactions, Vodafone will own 74 percent of VEL directly via its subsidiaries.

The remaining 26 percent of VEL will be majority-owned and controlled by Indian shareholders.

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