Vodafone may float Indian arm to raise $4bn as Liberty merger calls grow louder

As speculation about a potential merger with John Malone's Liberty Global intensifies further, Vodafone has appointed advisers to examine a potential flotation of its Indian arm.

The FTSE 100 telecoms giant was reported to be reviving its plans for an initial public offer (IPO) of the Indian unit, which is expected to raise $3-$4bn, according to various media reports.

The Indian business is thought to have a total market value of nearly $30bn, including roughly $11bn of debt.

Vodafone, which remains entangled in a $2bn tax dispute with the Indian government, has appointed NM Rothschild to look at the viability of an IPO of a business that contributed nearly 10% of the company’s global revenue in the last full-year and is the group's largest unit by number of customers.

In 2013 chief executive Vittorio Colao said he would only look at listing its Indian unit once the company had resolved the tax dispute, which concerns its 2007 acquisition of mobile assets in the country.

UBS said, in a note to clients on Friday, that after speaking to Colao it felt he was "pragmatic" on potential M&A and "could consider asset swaps in Europe and is not against splitting off its AMAP [Africa, Middle East and Asia Pacific] unit".

Colao has reportedly asked Rothschild to submit a report by August that will calculate an appropriate valuation for the subsidiary.

When asked about a potential deal, a Vodafone spokesperson said the company could not “comment on a potential listing of Vodafone India at this point” though it may consider an IPO “at some point in the future", CNN said.

Vodafone acquired full ownership of the Indian business by buying out entire stake from its local partners for Rs 101.41bn ($1.8bn) in 2013.

Over the weekend, it emerged that several major Vodafone shareholders have begun to urge the company to push ahead with a potential merger of its European operations with Liberty Global by selling off some of its further-flung interests.

According to the Sunday Telegraph, two of the company's most significant shareholders told it they were in support of such a move.

One of the institutional sources spoken to by the newspaper said: "Nobody has ever doubted the strategic logic of a combination with Liberty, but now it looks like the stars are aligning. We're very open to the combination and being open probably means selling off Africa, the Middle East and Asia-Pacific. It's in the interests of both sets of shareholders to do the deal."

Last week, US tycoon Malone dropped heavy hints about a potential merger, saying that that a long-rumoured combination between Liberty and Vodafone's European businesses would be a "great fit".

UBS, in a note to clients on Friday, said, after speaking to the company, that a merger of equals "could be difficult", in its view, with Liberty likely to want control and Vodafone unlikely to want to repeat its Verizon Wireless experience.

"With LBTY willing to operate with higher leverage, we re-iterate our view it could be easier for LBTY to acquire VOD rather than the other way around. On regulatory approval, we think any deal would likely be looked at by the EC rather than local authorities."