Hong Kong based Hutchison Telecommunications International (HTIL) is conducting a Swayamvar of its Indian subsidiary Hutch-Essar (HEL). And all the big and small maharajas of Indian telecom are lining up.
Buying and selling businesses is not alien to Hutchison Whampoa, headed by billionaire Li Ka Shing. The group sells a business as and when it gets good value.
there are multiple reasons supporting a possible sale: Telecom valuations are currently high (with HEL being valued at nearly $14 billion), the group needs money to repay debts and Hutchison Telecommunications International (HTIL), which holds 67% in HEL, has failed to take public its Indian arm.
Hutch Essar is understood to be valued between $13-17 billion. Research firm Macquarie puts Hutch’s enterprise value (EV) at $13.8 billion while ET estimates the value to be around $15-17 billion.
The Indian telecom market is the fastest growing in the world and pre-tax profits for the top three or four telcos are said to be in the region of 40%.
List of would-be suitors is growing by the day – from Reliance Communications to Essar Group to Maxis of Malaysia, besides Orascom, Qatar Telecom, Vodafone and perhaps Bharti Airtel.
Reliance Communications is believed to have tied up with four American equity funders — Blackstone, Texas Pacific Group, KKR and Carlyle. For Reliance it makes sense to acquire Hutch Essar. Reliance Communications has a subscriber base of about 24 million, second only to Bharti Airtel’s 30 million and a shade larger than Hutch Essar’s 22 million. Reliance’s acquisition of Hutch Essar would propel him to a dominant numero uno position.
But it isn’t enough for Hutchison to agree to Reliance’s offer to buy its 67% even though it would give him majority control of Hutch Essar. Under law, it’s all or almost nothing: he has to stay below 10% or he has to buy out the entire 100%. Therefore, unless Essar’s Ruias agree to sell their 33% and exit Hutch Essar, Reliance cannot enter. But regulatory guidelines do not pose hurdles in the way of Reliance acquiring Hutch.
As per the guidelines, the combined entity can’t hold more than 15 MHz of spectrum in Metro and A category circles and 12.4 MHz spectrum in B & C circles. RCL faces the spectrum regulatory issues only in two circles.
RCL’s GSM arm, Reliance Telecom, offers services in eight circles, of which it overlaps with HEL in West Bengal and Kolkata. HEL is not present in RCL’s other GSM circles — MP, North-East, HP, Bihar, Orissa and Assam.
Also, the market share of the combined entity should not exceed 67% in any circle. However, this will not be the case in any of the 23 circles for RCL.
Bharti Airtel: ET speculates on the plans of Sunil Mittal. Is he talking to Vodafone and Singtel? Reliance’s acquisition of Hutch Essar would have serious implications, leaving him a distant no. 2 in the game.
But when asked if Bharti Airtel would team up with its strategic investors, Singtel and Vodafone, to bid for HEL, Mr Mittal said the speculation was baseless and Bharti had never considered the move. Bharti has refrained from making a bid for HEL as the company is focused on its own expansion, and don’t want to be dragged into legal and regulatory issues associated with the buy-out.
As per the Indian telecom mergers and acquisitions guidelines, no company can have more than 15 MHz of spectrum in a licence area. A merged entity of Hutch and Bharti would therefore have to vacate spectrum in all circles where they jointly have more than 15 MHz.
Vodafone: ET reports that the UK-based giant is quietly drawing up plans to throw its hat in the ring for Hutch-Essar. Talks are on with bankers and advisors on the strategy to be adopted.
The company is also believed to be exploring options of selling its stake in the Bharti group. It is believed that UBS, Vodafone’s house banker, has been asked to explore options of selling its combined 10% stake in Bharti Airtel.
But the shareholding agreement with Sunil Mittal’s Bharti group has a non-compete clause that bars Vodafone from competing with Bharti for one year after the sale of shares in the Indian company.
Maxis: The Malaysian operator headed by Anand Krishnan, which operates Aircel in India, is understood to have engaged Standard Chartered as their adviser.
But Hutchison is believed to have rejected a $13.5 billion bid from Maxis with private equity firm Texas Pacific Group. This implies that Hutchison is looking at a higher valuation.
Orascom: The Egyptian telco, which has over 19% stake in Hong Kong-based HTIL, is understood to have appointed Deutsche Bank as their adviser. Orascom, a key player in Pakistan, has raised security concerns among intelligence agencies.
Essar Group: The Ruias of Essar group are in talks with various European and US banks to raise funds. They have recently appointed J M Morgan Stanley to advise them on the transaction. The group is also seen to have invited Qatar Telecom and Isthitmar – the private equity arm of Dubai government.
There are reports that Essar would not be averse to exit from the venture if the valuation was right.
The Ruias have had their share of problems with Hutchison and the strongwilled Hutch Essar CEO Asim Ghosh.
From various accounts, Shashi Ruia and Ghosh share a certain bond based on mutual respect and fondness; but it’s Ravi Ruia who’s been the pointman for Essar on Hutch and it’s not known whether there’s happy co-existence on that front. There have been unconfirmed stories in the past that Ravi believes that their 33% stake in Hutch Essar entitles them to a greater say in management. But they also recognise that Ghosh and his team have built enormous value for them.
Hutchison adviser Goldman Sachs is understood to be dealing with the three bidders and is believed to have communicated that a decision could taken in the next few weeks. A call for the soother could be taken in less than a month.
Lets see who will be the charming prince to get the varmala.
Source- mobilepundit Wireless Mobile Telecom
