By Paul Sandle
LONDON (Reuters) -An Abu Dhabi-based telecoms company's stake in mobile group Vodafone (LON:VOD) poses national security risks in terms of government contracts and cyber security, Britain has concluded, ordering Vodafone to take steps to manage the risks.
In a statement published on Jan. 24, the UK government cleared state-controlled Emirates Telecommunications' 14.6% stake in Vodafone, which makes it the British firm's largest shareholder.
However, the government said Vodafone should establish a national security committee to oversee sensitive work that could have an impact on national security.
It also limited the functions that an e& representative can undertake on Vodafone's board, without giving more details.
Fears that foreign powers could meddle in key British businesses have prompted the government to step up scrutiny of corporate transactions involving state-owned buyers and companies from authoritarian countries.
Britain is also scrutinising an Abu Dhabi-backed group's takeover plan for Britain's Telegraph newspaper.
E&, which has operations in 16 countries across the Middle East, Asia and Africa, has built up a stake in Vodafone since an initial investment in May 2022 and the two companies agreed to deepen their relationship in May 2023.
Vodafone said then that e&'s chief executive Hatem Dowidar would join its board as a non-executive director.
A Vodafone spokesperson said on Thursday: "We are pleased to have received clearance in our home market for our strategic relationship agreement with e&, and for e& to take a seat on our board."
The strategic partnership is still awaiting clearance in a number of other jurisdictions.
E& did not immediately respond to a request for comment.
Shares in Vodafone were trading down 1.2% in early afternoon deals.
Britain said the risk arose in relation to Vodafone's roles in supplying communications to many parts of central government and in ensuring the country's cyber security.