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Mergers & acquisitions

Private Equity Targets Hutch

The rumor mill is spinning wildly about the future of Indian mobile operator Hutchison Essar , the latest carrier to find itself in the crosshairs of private equity firms.

Earlier this month, the operator, a joint venture between Hong Kong-based Hutchison Telecommunications International Ltd. (NYSE: HTX) and India's Essar Teleholdings, was approached with a $14 billion offer from TPG Inc. in partnership with Malaysian carrier Maxis Communications Bhd. Maxis entered the Indian market early this year with the acquisition of Aircel Ltd. (See Maxis Snaps Up Aircel.)

According to a report in Chinese newspaper Sing Tao Daily, Hutchison Telecom International, which holds a 67 percent stake in the company, rejected the offer on the grounds that Hutchison Essar is its most valuable asset. The fourth largest carrier in India, Hutchison Essar has more than 22 million subscribers and accounts for 49 percent of Hutchison Telecom International's revenues. (See Hutch Reports Q3 KPIs.)

But now Texas Pacific has apparently teamed up with Kohlberg Kravis Roberts & Co. (KKR) , The Blackstone Group , and Indian operator Reliance Communications Ltd. (RCom) to discuss bidding on the company, which analysts have valued at between $10 billion and $13 billion. Reliance has already been in preliminary talks with Blackstone and the The Carlyle Group LLC to offer $8 billion for HTIL's stake, reports say. The carrier did not respond to a request for comment.

Reliance is India's largest CDMA-based operator, but it’s looking to expand its GSM coverage to accommodate rapid subscriber growth -- hence the interest in Hutchison Essar, which has recently been awarded new licenses to expand its GSM network. (See Reliance Plans $7B GSM Build-Out and Hutch Essar Receives Licenses.) Telecom regulations will prevent Reliance from taking more than a 10 percent stake in its competitor.

Despite Hutchison Essar's value to HTIL, it could decide to exit the company over a dispute with Essar Teleholdings that has seen the two engaged in court proceedings and abandoning plans to take the company public. (See Hutch Essar Expands, Scraps IPO.)

Part of that dispute stems from HTIL's decision to sell a 10 percent indirect stake in the company to Egyptian carrier Orascom Telecom at the end of last year. (See Orascom Buys Hutch Stake.) Essar objected to the sale on security grounds, and has been seeking to increase its 33 percent stake in Hutchison Essar -- a potential hurdle to any private equity deal. If HTIL does decide to cash out, Essar would have the right of first refusal on buying out the holding before HTIL can offer it to other companies. There have been rumblings that Essar could find a partner to do just that.

Canning Fok, managing director of Hutchison Whampoa Ltd. (Hong Kong: 0013; Pink Sheets: HUWHY) and chairman of Hutchison Telecom International, reportedly met with Essar executives last Friday to discuss an out-of-court settlement to their disagreement over the integration of BPL Mumbai, acquired by Essar last year.

The latest subscriber figures indicate BPL Mumbai's bottom line has taken a hit following the spat; as of November 30 the operator had lost 300,000 customers since June, bringing its subscriber base down to one million. In August, Essar announced a capex budget of Rs 10 million (US$223,000) to increase the capacity of BPL's network, but its expansion plans remain stalled.

— Nicole Willing, Reporter, Light Reading

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