India's M&A Bandwagon Rolls On
Telekom Malaysia Bhd. , which has had its eye on the Indian market, has acquired a 49 percent stake in Spice Telecom , the country’s seventh largest mobile operator. (See TM Acquires Spice Stake.) In a deal worth 8.05 billion rupees(US$178.85 million), Telekom beat out domestic rival Maxis Communications Bhd. to take on the stake held by Ashmore Investments and Deutsche Bank AG .
Tata Teleservices Ltd. has been looking to sell off a 10 percent stake to raise money for network expansion, but ended up offloading 18 percent to rake in a total of more than $580 million. Singapore’s Temasek, a state-owned private equity fund, has picked up a 9.9 percent interest in Tata for R15 billion ($338.05 million), while another 8 percent has been sold to Sterling Infotech Group for around R12 billion ($269 million). The group’s founder, C Sivasankaran, had some cash to spare after selling Aircel Ltd. to Maxis for $1.08 billion. (See Maxis Snaps Up Aircel.)
The Times of India reports that the Essar group is acquiring an additional 5.11 percent in Hutchison Essar , its joint venture with Hong Kong’s Hutchison Whampoa Ltd. (Hong Kong: 0013; Pink Sheets: HUWHY). The deal would give Essar a 38 percent stake and make it the largest shareholder in the mobile company. Whampoa holds a 10 percent direct interest and another 25 percent through Hutchison Telecommunications International Ltd. (NYSE: HTX).
Essar is looking to consolidate control following Whampoa’s agreement with Orascom Telecom , which gives the Egyptian operator an indirect interest in Hutchison Essar. The Indian government has raised security concerns about that arrangement, as Orascom reportedly has connections to Pakistan. Hutchison Essar is set to IPO some time this year. (See Hutchison Essar Preps IPO.)
Bharti Tele-Ventures Ltd. is looking to boost its stake in regional mobile operator Hexacom to 97.5 percent by bidding to acquire 30 percent from Telecommunications Consultants India Ltd. (TCIL) . A government-owned consulting and engineering company, TCIL wants to divest its holding in the operator to focus on its core business, while Bharti is in the process of reorganizing its various subsidiaries under the Airtel brand.
Sridhar Pai, analyst at Tonse Telecom , says the M&A activity is set to continue, as several of India’s smaller regional operators are looking to be acquired soon, and foreign carriers in saturated markets with cash to spare are attracted by India’s surging telecom growth.
But he notes that the price tags on these deals raise questions about what the investors are getting into. “In terms of valuations they may have overpaid,” he says. For example, the Spice deal values the carrier at 15.4 times EBITDA, while Maxis paid more than $1 billion for Aircel. Those figures don’t take into account the investment the new owners will need to put into the networks they’re acquiring.
Because of pent-up demand in a market where subscriber numbers are growing by more than 4 million every month, operators have been focusing on adding customers rather than upgrading network capacity to handle all the additional call traffic, and call quality is suffering.
A recent study by the Telecom Regulatory Authority of India (TRAI) finds that in some telecom “circles” the call completion rate has fallen below 15 percent.
Pai says: “Everyone is talking about operators adding 4 million subscribers a month, but when you look at the quality, how good a service are they offering to the customers they’re so easily acquiring?”
— Nicole Willing, Reporter, Light Reading