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Piramal expects Vodafone IPO in 12-24 months

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CIOL Bureau
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MUMBAI, INDIA: Indian drugmaker Piramal Healthcare expects its minority investment in Vodafone's India unit to yield 17-20 per cent returns, its Chairman said, adding he expected the telecom firm's initial public offer (IPO) to hit Indian markets in 12-24 months.

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The drugmaker agreed to buy 5.5 per cent stake in Vodafone's India mobile operations for $640 million on Wednesday. .

Vodafone said Piramal would buy the stake from Essar, its joint venture partner in the country. Vodafone had earlier said it will consider an IPO of the Indian unit after it closes the Essar deal.

The London-listed company, in July, sealed a long awaited deal to buy out Essar. But the sale would have pushed Vodafone just above the 74 per cent limit set for foreign companies in India's telecom sector.

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The stake sale to Piramal will put Vodafone nearer the 70 per cent mark.

"Vodafone has delivered a strong performance in India and has strong credentials," Piramal said explaining his decision for the stake buy.

This is the cash flush company's second unrelated investment after it bought private equity firms IndiaReit Fund Advisors and IndiaReit Investment Managers.

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Ajay Piramal said the company is sitting on a cash pile of 100 billion rupees.

"The investment is part of our strategy to deliver superior returns to our shareholders from the surplus funds we have," Piramal told a news conference and said, the company was looking to park its funds on short-term basis with global companies.

The transaction contemplates various exit options for Piramal, including both participation in a potential IPO of Vodafone Essar Ltd and a sale of its stake back to Vodafone, the Indian firm said in a statement.

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Piramal expects to complete the deal "shortly" he said adding, "We can sell the stake to a third party as well if the IPO doesn't happen in 24 months."

Scouting options for funds

Piramal Healthcare, mopped up a kitty of $3.72 billion by selling its India formulations business to U.S.-based Abbott Laboratories in 2010.

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The Mumbai-based firm also sold its diagnostic services unit to India's Super Religare Labs - controlled by billionaire brothers Malvinder and Shivinder Singh who run Fortis Healthcare (India) and Religare Enterprises - for about $132.6 million.

Post the two major divestments, Piramal has been looking for investments outside pharmaceutical sector and recently announced a foray in financial services segment.

"Such a huge amount cannot be absorbed only in pharmaceuticals sector... therefore, we have to find avenues to invest these funds," he said.

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The company, however, would continue to focus on pharmaceuticals sector and plans to invest about 70 billion rupees ($1.55 billion) over the next five years to drive its drugs business, he said.

The drugmaker provides contract research and manufacturing services and also sells critical care and over-the-counter products.

Shares of Piramal Healthcare, valued at $1.37 billion, ended at 375.05 rupees, up 1.16 per cent.

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