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Reliance and Vodafone bid in for Hutch
The companies are gearing up for a $13.5 billion-plus bid but the prices indicated so far are too low to be accepted
Friday, December 22, 2006
LONDON - Hutchison Telecommunications International Ltd. said on Friday that it has been approached by various parties regarding a possible sale of its interests in Hutchison Essar, its mobile operations in India.
No agreement has been entered into, the company added.
Hutchison Whampoa had received bid approaches for its Indian mobile phone business, a source close to the matter said sparking talk that Britain's Vodafone and India's Reliance Communications are gearing up for a $13.5 billion-plus bid battle.
"There have been some expressions of interest," the source said. The source declined to name the suitors for Hutchison Essar, India's fourth-biggest mobile phone business, but said the prices they had indicated so far were too low to be accepted by ports-to-telecoms conglomerate Hutchison.
Vodafone was considering a $13.5 billion-plus offer for Hutchison Essar as it looks to expand in fast-growing emerging markets to offset slowing growth in its European heartlands.
Reliance Communications, India's number two mobile phone group, is also looking at a possible bid in tandem with private equity group Blackstone, another source familiar with the situation.
UK-based Vodafone said that the process was at an early stage, but its board believed the mobile market in India has great potential.
Hutchison Essar is 67 percent-owned by Hong Kong tycoon Li Ka-shing's Hutchison Telecommunications International. India's Essar group, which holds the remainder, has first right of refusal if Hutchison decides to exit. Analysts said Essar was unlikely to want to increase its stake and would probably prefer a deal with Vodafone than domestic rival Reliance.
Vodafone underlined its ambitions to expand in emerging markets at an investor day earlier this month and analysts have long expected it to step up its presence in India, the world's fastest growing mobile phone market.
Vodafone has a 10 percent stake in India's number one player Bharti Airtel Ltd. but Bharti Chairman Sunil Bharti Mittal told Reuters in October the group was not keen to sell a further chunk of the business to Vodafone.
POTENTIAL OVERPAYMENT
Bear Stearns analyst Fanos Hira said growth prospects in Vodafone's saturated European markets were bleak and that its organic earnings growth was likely to peak this financial year.
"The pressure for Vodafone to do a deal in the next quarter is high, which raises the risk of potential overpayment," he said, keeping an "underperform" rating on Vodafone shares.
At 1405 GMT, the shares were down by 2.2 percent , the biggest faller on the UK's benchmark FTSE-100 index. Reliance shares closed up 3.2 percent at 461.7 rupees, but analysts also expressed concern it might overpay in a bid battle for Hutchison Essar.
"Reliance Communication carries the risk of paying a significant valuation premium," brokerage CLSA said.
At $14 billion, analysts estimate Hutchison Essar's enterprise value at 20.6 times EBITDA (earnings before interest, tax, depreciation and amortisation) in the year to March 2007, well above Bharti's 16.2 times.
India's GSM carriers reported a record 5 million new subscribers in November, including more than 1 million for Hutchison, taking total users in the country beyond 143 million.
Hutchison has a market share in India of about 16 percent, behind Bharti's 21.5 percent, Reliance's 20.4 percent and state-run Bharat Sanchar Nigam's 16.5 percent.
Foreign investors are limited to owning 74 percent of Indian mobile operators.
Dresdner Kleinwort analysts said Vodafone would have no problem funding the deal after selling Swiss and Belgian assets for about 3 billion pounds ($6 billion). It could also raise over 1 billion pounds by selling its stake in Bharti, he said.
Indian newspapers said Malaysia's Maxis Communications -- which last year bought 74 percent in India's Aircel -- and Egypt's Orascom Telecom were also potential suitors for Hutchison Essar.
Hutchison Essar is attracting interest due to its high revenue per user. CLSA estimates its average revenue per user (ARPU) at 420 rupees ($9.4) a month, against an average 366 rupees for all providers. In comparison, Reliance has an ARPU of 354 rupees, while Bharti leads with 438 rupees, it said.
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