Vodafone invites banks to pitch for $2-2.5 billion Indian IPO - sources

By Sumeet Chatterjee and Denny Thomas

HONG KONG (Reuters) - Vodafone Group has set the ball rolling for the long-awaited initial public offer of shares in its Indian subsidiary by inviting banks, including Citigroup, Goldman Sachs and Morgan Stanley, to make pitches to manage it, people with direct knowledge of the deal said.

The offer of shares in Vodafone India is expected to raise between $2 billion and $2.5 billion, the people said, making it the biggest IPO in India since state-owned Coal India Ltd's $3.5 billion listing in 2010.

Vodafone Group, which is India's second-largest mobile operator behind Bharti Airtel, had raised the prospect of a listing in India as early as 2011.

Other banks approached by Vodafone included Bank of America Merrill Lynch, UBS Group as well as Indian banks ICICI Securities and Kotak Investment Banking, the people added.

The investment banks have been asked to make their pitches next week to win underwriting mandates for the share sale, the people familiar with the matter said.

The company is expected to pick about half a dozen banks to manage the offering in the next two weeks, these people added. Vodafone India is likely to be valued at about $20 billion under the offer, according to analysts' estimates.

The deal offers an unusually lucrative opportunity for international banks in a market where the fees earned on underwriting share sales are amongst the lowest in the world and equity raisings worth more than $1 billion are rare.

Fees paid to banks, both foreign and domestic, for underwriting share sales last year totalled $19.6 million from 134 offerings, up from $10.3 million in 2014, according to Thomson Reuters data.

Vodafone said in November it had started preparations for floating its Indian subsidiary.

"We have previously said that we have started preparations for a potential IPO, which includes private conversations with banks, but this is a lengthy process and no decision will be made until we are at the end of it," the parent company said on Thursday in a statement issued in London.

Bank of America Merrill Lynch, Goldman and UBS declined to comment. Citigroup, Morgan Stanley and the Indian banks did not respond to requests for comment.

INDIA EXPANSION

Vodafone, one of the largest corporate investors in Asia's third-largest economy, is expected to use the proceeds to buy additional radio spectrum and further expand its operations across India's crowded and cut-throat market.

Indian mobile phone operators have been spending heavily in setting up fourth-generation (4G) mobile broadband data networks to meet the expected demand.

Vodafone entered India in 2007, when it acquired a majority stake in Hutchison Essar and since 2014 has wholly owned Vodafone India, which operates in a market that has over a billion mobile subscribers – the second-biggest market in the world behind China.

The company's market share in India has increased from 15.6 percent in 2007 to 18.4 percent in the latest reported July-Sept 2015 quarter, according to Indian telecoms regulator TRAI. It has about 188.3 million mobile subscribers.

Vodafone is pushing ahead with its IPO plans even though a $2-billion tax dispute dating back to its acquisition of Hutchison Essar remains unresolved.

The preparation for the IPO also comes as Reliance Jio, controlled by Mukesh Ambani, is gearing up to disrupt the market with the launch of the country's biggest 4G network.

(Additional reporting by S. Anuradha of IFR, Himank Sharma in Mumbai and Paul Sandle in London; Editing by Lisa Jucca and Greg Mahlich)