Vodafone’s Sarin Prepares Bid for Hutchison Essar
Bloomberg writes…Vodafone Group Plc Chief Executive Officer Arun Sarin said he’s close to making an offer for India’s Hutchison Essar Ltd. to gain a 16 percent share of the world’s fastest-growing mobile-phone market.
Vodafone, the world’s largest cellular-phone company, will bid “in a few weeks,” Sarin said in New Delhi today. The bid may come “a bit later” than the end of this month, he said. He declined to say how much the company will offer for the company that bankers estimate is worth as much as $18 billion.
Sarin may face competing bids from Reliance Communications Ltd., India’s second-biggest wireless operator, and Hinduja Group to acquire a 67 percent stake from Hong Kong billionaire Li Ka- shing. Hutchison Essar is adding 1 million customers a month in India, where only 13 percent of the population owns a cell phone.
“India is a lucrative market and all the players want a slice of the game here,” R.K. Gupta, who manages $66 million at New Delhi’s Credit Capital Asset Management, said by telephone from Singapore. “Vodafone’s entry raises the bar for the likes of Reliance Communications.”
Newbury, England-based Vodafone is “open to all options,” including a partnership with India’s Essar Group, owner of the remaining 33 percent stake, Sarin said. India’s government caps foreign ownership in telecommunication companies at 74 percent.
“Such deals should involve best commercial practices and be in the interests of all stakeholders involved,” India’s Commerce and Industry Minister Kamal Nath said after he met with Sarin.
China, India
Vodafone, which owns 10 percent of Bharti Airtel Ltd., India’s largest mobile-phone operator, is building on its strategy to expand in developing countries and exit markets where it doesn’t have majority stakes. The company in December said it wants to raise its Bharti Airtel stake and continue to expand in China, where it owns 3.3 percent of China Mobile (Hong Kong) Ltd.
Bharti Airtel Chairman Sunil Mittal today said Vodafone has no immediate plans to sell its stake.
“The question doesn’t arise at the moment,” Mittal told reporters in New Delhi. “We will have to watch the developments as they take place.”
Vodafone has since the end of 2005 sold its units in Japan and Sweden, as well a stakes in Swiss and Belgian mobile-phone companies for a total of $21.8 billion.
Rising Earnings
In the first half ended Sept. 30 Vodafone’s earnings before interest, tax, depreciation and amortization rose 5.7 percent to 6.24 billion pounds ($12.1 billion) spurred by emerging markets.
“The future for growth is in emerging markets,” as average revenue per user falls in developed markets such as the U.K. and Germany,” said Daniel Broby, chief investment officer at Copenhagen-based Bankinvest, which owns 7.23 million Vodafone shares among its $14 billion in assets. India is “the world’s largest English speaking democracy and that’s the place to be.”
Sales and profit in the fiscal first half grew 50 percent in developing countries as Sarin expanded in Turkey, Egypt and South Africa to counter falling sales in Germany and Italy.
The cost of a credit-default swap based on 10 million euros ($13 million) of Vodafone debt rose to 25,643 euros today from 25,615 euros yesterday, the most since Nov. 15, according to data compiled by Bloomberg. The contracts are financial instruments based on corporate bonds and loans that are used to speculate on a company’s ability to repay debt. An increase indicates deteriorating credit quality.
`Interested Parties’
Reliance Communications, controlled by Indian billionaire Anil Ambani, is holding a board meeting today to consider raising funds overseas. Ambani said on Dec. 28 that banks and private- equity firms were prepared to fund a possible acquisition.
Shares of Reliance Communications fell as much as 4.5 percent to 404.1 rupees in Mumbai. India’s Sensitive index lost 1.4 percent. Vodafone shares fell as much as 2 percent to 146.5 pence in London.
Hutchison Telecommunications International Ltd., controlled by Li, on Dec. 22 said “various potentially interested parties” approached the company about buying its stake. “There is no assurance that a sale may result from these approaches,” the Hong Kong-based company said, without identifying the suitors.
Hutchison Telecom spokeswoman Mickey Shiu today declined to say whether the company will meet Vodafone executives on their visit to India. She also declined to say if the company is holding a board meeting to discuss the sale of its stake.
Shares of Hutchison Telecom rose 31 percent in the three months before today, as interest in the Indian unit increased, compared with a 13 percent gain in the Hang Seng Index.
Hinduja Group said on Jan. 5 it was in talks with Hutchison Telecom to buy a majority stake in Hutchison Essar. The group was also in talks with international banks to finance a potential acquisition, Vice Chairman Abin Das said.
Record Subscribers
India added a record 6.79 million mobile-phone users in November, or two every second, for a total of 143.02 million, fuelled by an economy that Credit Suisse forecasts will expand 10 percent, faster than China’s. About 35 percent, or 455 million, of China’s population owned a cell phone as of November.
India, which aims to have 500 million mobile-phone subscribers by 2010, will accelerate user growth by offering handsets for 1,000 rupees each within the next year, federal Minister for Communications and Information Technology Dayanidhi Maran said on Dec. 14.
Hutchison Essar began operations in 1994 with a cellular license for India’s commercial hub of Mumbai. The company ended November with 22.3 million subscribers and a nationwide market share of almost 16 percent. Its users account for a fifth of wireless connections in New Delhi and a quarter in Mumbai, two of India’s largest markets.
