Hutchison increases stake in Indian telecom venture

Hutchison Telecommunications International (HTIL) confirmed on Friday, June 30 HTILÆs acquisition of a 5.11% stake in unlisted Indian telecom company Hutchison Essar from Hinduja TMT for $450 million. The stake was acquired by Hutchison Telecommunications (India), an indirect wholly owned subsidiary of HTIL, which is an associate company of Hutchison Whampoa. HTIL will now directly and indirectly control 67% of Hutchison Essar.

Dennis Lui, CEO of Hutchison Telecom says: ôThis transaction reaffirms our commitment and interest in Hutchison Essar and better positions us for further developmentö. Hinduja TMT Chairman Ashok Hinduja comments, ôthe Board decided to monetise its investment in Hutchison Essar to unlock the value for its shareholders and accepted the offer madeö. Hinduja TMT will deploy the funds to enter new areas such as internet telephony. IndusInd Investment Bank acted as sole financial advisor to the deal, as per a Hinduja statement.

News of the transaction has been buzzing in MumbaiÆs markets since early June although some valuation estimates had placed the price Hutchison was paying at more then $500 million. A simplistic, back of the envelope calculation suggests the price of $450 million for a 5.11% stake values the company at about $9 billion. However, this assumes no pre-emptive premium was paid and further that no extra value was demanded by the sellers for offering a fairy substantial block of shares in excess of 5%. It is known that Essar, a diversified Indian business group which owns the remaining 33% of Hutchison Essar, was also, at one stage, interested in buying the stake.

The shareholding of Hutchison Essar was restructured in March this year, both as a precursor to an IPO and to ensure compliance with IndiaÆs regulations governing foreign direct investment in telecommunications companies. At the time leading Indian banker, Uday Kotak took a decision to exit the Kotak groupÆs stake in the joint venture with HTIL which owned 19.5% of Hutchison Essar. The joint venture holding company was restructured with Analjit Singh, one of the original founders of Hutchison Essar and Asim Ghosh, Managing Director, Hutchison Essar becoming partners alongside HTIL. The restructuring gave HTIL a strategic advantage in terms of control of the Hutchison Essar board. Post the restructuring of the holdings HTIL had the right to nominate six of the eleven directors compared to five earlier.