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...India is an interesting market along with
many other markets in Asia and we are constantly on the look out
for opportunities and will be evaluating many interesting prospects...
Spokesperson, Telenor, Norway's largest telecom company, to Business
Today
Even
if you aren't one of India's 143 million cellular phone users,
it wouldn't take you too long to single out Hutchison Essar Ltd
(HEL) as one of those "interesting prospects". India's
fourth-largest wireless operator with a subscriber base of a little
over 22 million has become the most sought after asset in the
recent history of global mergers & acquisitions, what with
Li Ka-shing, the promoter of the Hong Kong-headquartered $3.13-billion
Hutchison Telecom International (HTIL), putting its 67 per cent
holding in HEL on the block (19.55 per cent of it is held indirectly
via a company called Telecom Investments India, which has HEL
Managing Director Asim Ghosh and Max India Chairman Analjit Singh
as shareholders). With HEL in play as the backdrop, and going
by the reams of speculation generated in recent days, one would
be tempted to assume that the company that made the statement
about evaluating prospects in India could be Vodafone. Or Verizon.
Or Maxis. Or Orascom. Or even the UK-headquartered Hinduja Group.
After all, each of these global majors has either evinced, or
is said to have evinced interest, in the assets of HEL, which
stood at Rs 4,052 crore for the first half of 2006. Also in the
running are domestic corporations Reliance Communications (R-Comm)
and the Essar Group, which holds 33 per cent in HEL via its holding
company Essar Teleholdings Ltd (ETHL).
But, even as HEL's value on paper-or should
we say newspaper-hit an upper limit of $22 billion at the time
of writing, BT learns that the scramble for Hutch may not be restricted
to just the international and domestic players mentioned above.
In fact, BT's analysis reveals that the likes of Verizon and Orascom
are unlikely bidders, and, in fact, there could be a clutch of
other global telecom giants readying to throw their hat into the
ring for Hutch. These include Russia's Sistema, Spain's Telefonica
and Telenor, with one of its spokespersons making the above italicised
statement to BT, about looking out for opportunities in India
along with other Asian markets. Besides a presence in the Nordic
region and other parts of Europe, Telenor has operations in Asian
countries like Malaysia, Thailand, Bangladesh and Pakistan. India
would complete the picture for this company, which has a subscriber
base in excess of 80 million.
Of course, Telenor is still a rank outsider
in the bidding war for Hutch, but the short point is that virtually
every global telecom major worth its transmission towers will
be taking a close look at Hutch. Whilst most of them would be
looking for majority control, a few wouldn't mind settling for
a minority stake (perhaps the part offloaded by the Ruias of Essar,
if at all they decide to do so). And financing the acquisition
is the least of the problems, what with bankers falling over each
other to bankroll the deal. The reasons for such enthusiasm are
many. The biggest one is a presence in a market of 143 million
subscribers that's growing at a mind-boggling rate of 5 per cent
on a month-on-month basis, making it the fastest-growing cellular
market in the world. What's more, penetration levels are still
low at 12 per cent (less than 2 per cent in rural India), and
as developed telecom markets slide into saturation, India is clearly
the geography where most of the long-term potential is concentrated.
SUITOR #1
VODAFONE |
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Arun Sarin/CEO
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Background: The largest mobile company in the world,
which closed fiscal 2006 with revenues in excess of £29
billion
Financial health: Huge revenues of £29.35
billion in 2006, but the net loss of over £21.8 billion
overshadows the topline. Has been under fire from its shareholders
for its slow growth rates
Presence: Spread across 26 countries. Also has
partner networks in another 34 countries. Across its subsidiaries,
JVs and affiliate partners, Vodafone has over 190 million
subscribers
Why Hutch-Essar is important: A limited Asia presence-just
a 3.3 per cent holding in China Mobile-coupled with the
fact that most of its other markets like the UK, Germany
and Australia are saturated, make a presence in the world's
fastest growing market an imperative
PROBABLE SCENARIOS:
» Buying
out HTIL's stake and having Essar as the JV partner
» Buying
out HTIL's stake and having another Indian holding the balance
33 per cent
» Buying
HTIL's stake and then buying more from Essar to increase
the total holding to 74 per cent. Essar could hold the balance
26 per cent
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SUITOR #2
RELIANCE COMMUNICATIONS |
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Anil Ambani/ Chairman
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Background: Anil Ambani, Chairman, Reliance Communications
(R-Comm), told the media recently that the acquisition of
Hutchison Essar would fit well with his company's existing
business. Ambani claims he has received commitments from large
banks. He is teaming up with the Carlyle Group for this acquisition
Financial health: For the third quarter of 2006-07,
R-Comm had revenues of Rs 3,525 crore with a profit after
tax (PAT) of Rs 702 crore
Presence: Has a large CDMA presence in India, which
cuts across 21 circles with a subscriber base of more than
25 million. GSM operations have 3.5 million subscribers
in eight circles. Also owns Flag Telecom, a leading provider
of bandwidth
Why Hutch-Essar is important: Will make R-Comm
undisputed leader in India, with over 50 million subscribers.
Also, by one estimate, could save $5 billion in capex and
opex over the next five years if Hutch is acquired, as against
setting up a greenfield pan-India GSM network
PROBABLE SCENARIOS:
» Buying
over HTIL' stake and working with Essar holding a 33 per
cent stake
» Buying
over HTIL and Essar to have 100 per cent control
» Buying
over HTIL and Essar stakes completely and getting in a strategic
partner at a later date
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SUITOR #3
ESSAR GROUP |
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Ravi Ruia/ Vice Chairman
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Background: Flagship business is steel, refinery has
just started operations, but an early entrant into cellular
telephony, with a decade of experience. Holds 33 per cent
in Hutchison Essar-which stood at just around 18 per cent
a couple of years ago-estimated to be worth roughly $7 billion
Financial health: Steel and refining are expected
to generate cash flows of Rs 45,000-50,000 crore in a year.
Claims to have lined up $25 billion in acquisition financing
from global banks purely on the strength of the telecom
holding company's financials
Presence: Via Hutchison Essar, it has a presence
in 16 circles
Why Hutch-Essar is important: Has a head start
with its 33 per cent, but may be holding out to secure the
best valuation for it
PROBABLE SCENARIO:
» Well
placed to be a buyer, a partner or a seller, but the third
option is most likely
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SUITOR #4
MAXIS |
 Background:
Malaysia's largest operator with over 7 million subscribers
did apparently put in a bid of $13.5 billion to buy out a
100 per cent stake in Hutchison Essar with private equity
player Texas Pacific Group, but is said to have dropped out
of the race. Sources, however, insist Maxis is still in the
reckoning
Financial health: For 2004-05, Maxis' revenues
stood at RM6.37 billion (Rs 8,060 crore), while profit after
tax was RM1.71 billion (Rs 2,164 crore)
Presence: Apart from Malaysia, present in Indonesia
and in India via Aircel where it has a 74 per cent stake,
which it bought from C. Sivasankaran.
Why Hutch-Essar is important: Its Indian operation
covers just seven circles with a subscriber base of 4.2
million. Hutch-Essar would be one surefire way to get a
pan-India footprint
PROBABLE SCENARIOS:
» Could
pick up HTIL's stake and work with the Essar Group as a
JV partner
» Could
buy HTIL's stake and the Essar Group could dilute its holding
in favour of an Indian partner; Maxis' current operations
has the promoters of Apollo Hospitals as the Indian partner
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SUITOR #5
THE HINDUJAS |
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Ashok Hinduja/ Executive Chairman
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Background: Originally held a 5.11 per cent stake in
Hutchison Essar, which they sold out in mid-2006 for $450
million
Financial health: Group has global revenues of
$11 billion, and officials say raising cash isn't a problem
Presence: No presence globally as a cellular telephony
service provider. The 5.11-per cent stake in Hutch-Essar
was courtesy the Hindujas' presence in the Gujarat circle
Why Hutch-Essar is important: Looking at (finally)
expanding in India, and there can't be more attractive opportunities
than Indian telecom
PROBABLE SCENARIOS:
» Buy
HTIL's and Essar's holding which will give them 100 per
cent ownership
» Buy
HTIL's stake and work with the Essar Group holding 33 per
cent
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SUITOR #6
VERIZON WIRELESS |
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Ivan Seidenberg/ Chairman &
CEO
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Background: The US' second-largest cellular operator
uses CDMA technology and has around 57 million customers;
has Vodafone as a 44 per cent JV partner
Financial health: Revenues of $32.3 billion, with
operating income of $7.38 billion
Presence: Restricted to the US
Why Hutch-Essar is important: Any presence outside
a saturated US market is welcome
PROBABLE SCENARIOS:
» Buy
HTIL's stake and the Essar Group could hold the balance
33 per cent
» Could
join hands with Vodafone to acquire the HTIL stake and Essar
Group could be the Indian partner
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And then there's
Hutch itself, which analysts tout as the best-run Indian cellular
operation in 16 circles, with clear leadership positions in Mumbai,
Kolkata and Gujarat. Average revenues per user are higher than
the industry average of Rs 335, and margins at the earnings before
interest, tax, depreciation & amortisation (EBITDA) level
are immensely attractive at close to 33 per cent. What's more,
it isn't often that an acquisition with the juicy prospect of
a majority holding comes along-that too of a player with a large
footprint, with Hutch present in 16 out of a maximum of 23 circles.
So, who will snare Hutch via a deal, which
one of the bidders touts as "largest to come out of Asia,
ever (barring the transactions involving government-owned entities
in China)"? The £29-billion Vodafone is one obvious
bidder. At the time of writing, Vodafone had met with D.S. Mathur,
Secretary, Department of Telecommunications (dot). Sources also
indicated that Vodafone had mandated Ernst & Young (E&Y)
to conduct a due diligence on Hutchison Essar. (Goldman Sachs
is advising HTIL on this deal. Essar is being advised by JM Morgan
Stanley).
Barring China, the UK operator does not have
a presence in Asia and India fits in well with its objective of
growing in emerging markets. Vodafone's recent decision to sell
its 25 per cent holding in Swisscom for £1.8 billion, apart
from diluting its holdings in Japan and Belgium, confirms its
focus on markets that offer greater potential. "India is
clearly the best frontier of growth in emerging markets, apart
from possibly Indonesia. In that context, India for Vodafone is
an obvious choice," thinks Subhabrata Majumder, Telecom Analyst,
Macquarie Securities (India). For its part, Vodafone, in an official
statement, says the Indian mobile market has great potential and
that it is indeed considering the acquisition of a controlling
interest in HEL. More importantly, it added that "such a
transaction would be consistent with its stated strategy of selective
acquisition opportunities in developed markets".
| HUTCH IN INDIA |
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1994
Hutchison Max Telecom Limited (HMTL), a joint venture between
Hutchison and Max, wins the licence to provide cellular
services in Mumbai
1995
HMTL launches mobile services in India under the Max Touch
brand name
1998
Hutchison and Kotak together buy out a large part of Max
India's holding through a JV called Telecom Investments
India (TII). Max's stake in HMTL is down to 10 per cent
from 51 per cent
2000 (January)
Hutchison acquires a 49 per cent stake in Sterling Cellular
in the Delhi circle from Swisscom, an Essar Group company.
A few weeks later, the Orange brand name replaces Max Touch
in Mumbai
2000 (July)
Hutchison and Kotak together acquire a 100 per cent stake
in Usha Martin Telekom in Kolkata circle
2000 (September)
Hutchison acquires a 49 per cent stake in Fascel, which
operates in Gujarat, from Shinawatra
2001
Hutchison puts in the bid to provide cellular licences in
Chennai, Andhra Pradesh, Karnataka and Maharashtra. It wins
all except Maharashtra
2003
Essar Teleholdings sells its operations in Rajasthan, Uttar
Pradesh (East) and Haryana to Hutchison Essar. Essar was
running these operations through group company, Aircel Diglink
India Ltd
2003
Hutchison acquires licence to provide cellular services
in Punjab. This is bought from Escotel
2004
Hutchison Telecommunications International Ltd (HTIL) gets
listed on the Hong Kong and New York stock exchanges
2004
Launches services in Punjab, West Bengal and Uttar Pradesh
(West). Also receives approval from the regulators to consolidate
its operations in India
2005
Hutchison Essar consolidates its various mobile companies
in India to create a single entity. A little later, Hutchison
Essar signs agreements with the Essar Group to acquire BPL
Communications and Essar Spacetel. During the same year,
Hutch becomes a national brand
2005 | |
