Vodafone’s pursuit of Hutchison Essar drew criticism from some key shareholders yesterday, as fears mounted that the British group would be forced to overpay for India’s fourth-largest mobile operator.

Investors were divided over Vodafone’s bid for Hutchison Essar, after Reliance Communications, India’s second-biggest mobile operator, entered the race for control of its smaller rival.

Standard Life Investments, which holds 1.7 per cent of Vodafone, threw its weight behind a bid for Hutchison Essar, which is valued at about $21 billion (£10.7 billion), including debt.

Wesley McCoy, investment director in UK equities at Standard Life, said that the performance of Telsim, of Turkey, Vodafone’s last big transaction in an emerging market, “bodes well for future moves”.

However, another key shareholder, who declined to be named, expressed concern about Hutchison Essar’s fast- rising valuation and gave warning that Vodafone must not get carried away. It urged Vodafone to stick to the strict acquisition criteria that it unveiled last May in response to shareholder discontent.

“Companies that publish targets would be expected to stick to them or otherwise acquire an unreliable image,” it said.

Vodafone has yet to canvas the opinion of shareholders on the Hutchison Essar deal, but shareholders have said that the group should expect to provide firm details on how a bid for the Indian player would meet the acquisition criteria.

Reliance, which is being advised by JPMorgan, argued yesterday that a tie-up with Hutchison Essar would create “compelling value” for all stakeholders.

Anil Ambani, its chairman, claimed to have the support of private equity funds and banks for its bid. “The commitments are more than what we can consume,” he said.

Kohlberg Kravis Roberts, the buyout group, is also taking a “serious look” at Hutchison Essar and could team up with Reliance, according to sources. Reliance is also in talks with KKR’s rivals Apax, Blackstone and Carlyle. Banking backers are believed to include Standard Chartered.

The combined operations of Reliance Communications and Hutchison Essar would create India’s largest mobile company, overtaking Bharti Airtel.

Times Recommends

• C&G axed - 1,660 jobs to be lost
• UK house prices rise 1.1% as buyers return
• Mixed reaction to US banks repaying bailouts