At it, again: So, is Li all set to pull off yet another multi-billion dollar deal?

Li Ka-shing, chairman of the Hutchison Whampoa Group, has an uncanny knack of spotting a business opportunity, investing in it and getting out at huge valuations. He launched star TV in 1991 which he sold to Rupert Murdoch two years later for $950 million. In 1994, he established the Orange mobile phone service in Britain which he sold in 1999 to Mannesmann, for which he got money and 10 per cent of Mannesmann's shares. Last fortnight, the question buzzing in telecom and corporate financial circles was: Is Li's richly valued telecom business headed for the block as well?

Recent media reports suggest that two private equity players-Blackstone Group LP and Texas Pacific Group (TPG)-will make a bid for the Hong Kong-based Hutchison Telecommunications International Limited (HTIL), which clocked revenues of hk$15.66 billion (Rs 9,000 crore) for the first half of 2006. Blackstone is said to be in dialogue with Anil Ambani's Reliance Communications to bid for the deal. (Both Blackstone and TPG declined to comment when contacted by BT.) Importantly, HTIL includes the Indian operation, Hutchison Essar Limited (HEL), which alone contributed 45 per cent to HTIL's turnover in the first half. HTIL's stake-direct and indirect-in HEL is about 67 per cent while the rest is held by the Indian partner, the Essar group.

Apart from India, HTIL offers mobile services in Macau, Israel, Thailand, Sri Lanka and Ghana. In Hong Kong, HTIL offers mobile and fixed-line telecommunication services. India, however, is the big story for HTIL and, not surprisingly, the Indian arm's healthy valuation-estimated to be around $11 billion (Rs 49,500 crore)-is the result of its operations' good performance. HEL operates in 16 circles in India and has just received a letter of intent (LOI) for six new circles which will increase its presence to 22 circles against a maximum of 23 circles for a pan-India presence. When HTIL acquired the Hindujas' 5.11 per cent stake in HEL in June this year for $450 million (Rs 2,025 crore), HEL was valued at $8.8 billion (Rs 39,600 crore). With the new circles coupled with a National Long Distance (NLD) licence and an increasing subscriber base-this is well in excess of 20 million-the valuation story could not have looked better for HEL. "HEL is in play on the Indian telecom M&A scene," says a telecom industry official. HEL officials said they do not comment on market speculation.

If HTIL wants to exit its India operations, its strained relationship with partner Essar might have plenty to do with that decision. Earlier this year, the two partners found themselves in the Bombay High Court-Essar, on its own, had bought out Rajeev Chandrasekhar's BPL Mobile operations across four cellular circles and sold it to HEL. Barring Mumbai, the other three circles were merged into the HEL fold and Essar called off its deal to sell the Mumbai operation to HEL. It, then, dragged HEL to court for not sticking to its commitment to acquire the Mumbai operation which was delayed since the go-ahead did not come from the Department of Telecommunications (DOT). This was preceded by Egyptian cellular major Orascom's decision to acquire a 19.3 per cent stake in HTIL that gave it a 10 per cent indirect holding in HEL. This has not gone down too well with the Essar Group. While the first right of refusal for HTIL's holding will be with Essar, it remains to be seen if the Ruias will be interested and, even if they are, how will they raise the money.

The effect of this squabbling has been that HEL's much talked about initial public offering (IPO) is pretty much on the backburner. The options left to Li are rather straightforward. If he does decide to sell, HTIL's 67 per cent holding-this includes stakes held by Analjit Singh and Asim Ghosh-could be worth more than $7 billion (over Rs 31,500 crore). With no IPO in sight, Li will have almost no option to unlock his value in HEL other than selling out his holding. At 78 and with a net worth of close to $19 billion (Rs 85,500 crore), Li might still have what it takes to pull off another multi-billion dollar deal.

Build or Buy?
Anil Ambani may have another route to be big in GSM.

Anil Ambani: Another ace up his sleeve

Recently Anil Ambani quite literally shocked the telecom fraternity when he expressed an interest to commence GSM services across the country. Ambani already has a presence in the GSM space through group company, Reliance Telecom Limited (RTL), which operates in seven circles with a total subscriber base of around three million. But the CDMA operations, with a subscriber pool in excess of 24 million, form the core of Ambani's Reliance Communications.

Media reports have indicated that Ambani has been in discussions with the Blackstone Group to acquire Hutchison Essar Ltd (HEL), the Indian arm of Hutchison Telecom International Ltd (HTIL)-see Virtue of Value. Indeed, HEL is a well-established operation and, with Ambani's large CDMA subscriber base, he will become the largest player in Indian telecom. When contacted, a Reliance Communications spokesperson said that the company does not comment on speculation. Yet, HEL would make a neat fit for Ambani, who has reportedly floated a Rs 36,000 crore tender for 75 million GSM lines. An acquisition may not prove much cheaper (HEL is estimated to be worth Rs 49,300 crore), but will mean a quicker entry into GSM. If such a deal works out, Ambani and the Ruias-33 per cent stakeholders in HEL-would have to work together, unless the former is able to buy out HEL lock, stock and Essar.

-Krishna Gopalan

Banking in Old Blighty
ICICI Bank UK is busy pocketing non-Indian customers.

It may still be a pygmy in comparison with Barclays, HSBC, Lloyds and NatWest, but ICICI Bank UK isn't doing badly for itself in that region. The three-year-old subsidiary of India's second largest bank, ICICI Bank, has found a comfortable niche for itself by building a balance sheet that's as large as $3.5 billion (Rs 15,750 crore), which is expected to hit $5 billion (Rs 22,500 crore) by March 2007. This makes it the largest Indian bank in Europe (and the highest rated one in the UK, to boot). "As a niche player, we are able to translate our low operating costs into lower interest rates for our depositors," explains Sonjoy Chatterjee, MD & CEO, ICICI Bank UK Ltd. For instance, the UK subsidiary offers a savings rate of 5.3 per cent on its direct banking (internet) platform, as against the base rate of 5 per cent prevailing in that geography. Through this platform, the bank is acquiring on an average 5,000 customers a month. The UK subsidiary has now emerged as the largest subsidiary of ICICI Bank, which also contributes the most to consolidated profits. Also laudable is that the customer base is dominated by non-Indians in the UK rather than persons of Indian origin.

ICICI Bank UK could well be one big reason why ICICI Bank CEO & MD K.V. Kamath is optimistic about international operations, which are expected to account for a fourth of the bank's balance sheet by 2010 (currently they contribute a 10th). Fuelling this charge will be Chanda Kochhar, Deputy MD, who has built ICICI Bank's Indian retail portfolio into a Rs 1 lakh crore colossus.

Hemmed in by the big boys of British banking, the ICICI Bank UK strategy revolves around a low-cost internet banking platform to penetrate the market there. In fact, ICICI Bank Canada has also adopted a direct banking platform. "We are seeing scale emanating from this platform," avers Chatterjee.

-Anand Adhikari

Fight to the Finish...
Or can Groupe Danone and the Wadias smoke the peace pipe?

No resolution in sight: The fight between Nusli Wadia and Groupe Danone rages on

The battle between Nusli Wadia and France's Groupe Danone, from all counts, is a while away from resolution. The two partners are now in court and this could well be the beginning of a long, hard battle. The bone of contention: Danone's decision to pick up a stake in Avestha Gengraine (Avesthagen), a Bangalore-based company with a focus on the convergence between food, pharmaceuticals and population genetics.

The first round seems to have gone in favour of the Wadias with the Bombay High Court restraining the transfer of shares. Danone was looking to acquire a 5 per cent stake in Avesthagen for m5 million (Rs 30 crore). The Wadias have contended that this is "a clear breach" of the provisions of the joint venture (JV) agreement that was entered into between Groupe Danone and the Wadia Group in 1995. A clause specified that any new opportunity relating to a food/beverage product in India would first be offered through a JV, Wadia-BSN Ltd. The breach has taken place since Danone has decided to invest in Avesthagen through a subsidiary, Daninvest.com. Interestingly, the Wadia Group had decided to invest in Avesthagen through Wadia-BSN even as Danone's representative director on the board, Francois Roger, opposed the proposal. This resulted in the inability of the board of Wadia-BSN to pass a resolution on this proposed investment.

For some time now, things have not been exactly cordial between Danone and the Wadias. The two are equal partners in the FMCG major Britannia where both hold a 25.5 per cent stake. Sparks flew when Danone's financial numbers for the quarter ended September 30, 2006 did not take into consideration Britannia's numbers. Britannia's Board of Directors decided to limit the release of what has been described as "price-sensitive financial information" to comply with stock exchange regulations in India. This was followed by a dispute on royalty payable on brands like "Tiger" and "Little Hearts." "Tiger" is a Britannia brand and Danone pays a royalty for using the brand in other markets. "Little Hearts", quite similarly, is a Danone property for which Britannia pays a royalty.

In a recent mail to BT, Danone says "...it has agreed to return intellectual property to Britannia, to pay any royalties due and are in conversations to determine the conditions of this return." The Wadia Group, for its part, says it is pleased with the court order concerning Avesthagen. "We value our partnerships and our decision to take action was only to ensure protection of our interest keeping the Wadia-BSN JV in mind. We do not believe that this case will jeopardise our current business partnerships with Groupe Danone," goes a Wadia Group statement. News reports have suggested that Danone could either exit from the Britannia JV or acquire the Wadias' stake. For now, the partners appear to be doing their bit to avert such an eventuality.

-Krishna Gopalan