Tony Munroe

HONG KONG: Hutchison Whampoa Ltd.'s emerging markets phone arm has delayed its Indian IPO as it awaits clarity over changes to foreign shareholding rules, but it remains determined to grow in what is its most promising market.

Hutchison Telecommunications International Ltd. (HTIL), controlled by Hong Kong tycoon Li Ka-shing, has pushed the much-anticipated Bombay IPO of its Indian cellular arm into the second half of this year due to regulatory uncertainty, the firm said in an interview.

The Indian unit is expected to raise roughly US$350-$500 million through the listing.

That delay also follows the recent collapse of its US$350 million deal to take over carrier Aircel Ltd., which would have given HTIL a presence in Tamil Nadu.

But Hong Kong-based HTIL, which completed its own US$890 million listing in October, is undeterred as it looks for growth opportunities in India -- including acquisitions.

"There are other targets that we might be interested in talking to," Chief Executive Dennis Lui said at the firm's headquarters in Hong Kong's Kowloon district. "We want to move into other areas because there's profits to be made. But you do it in stages -- you don't do it all in one splash."

Since its IPO, which saw weak interest from retail investors, HTIL has expanded with deals to launch startups in Indonesia and Vietnam, densely populated countries with low mobile penetration rates of roughly 14 and 4 percent, respectively.

Its stock, which has risen by up to 46 percent since listing, ended at HK$7.20 on Monday, 20 percent above the IPO price.

HTIL, which positions itself as an emerging markets Vodafone, is looking for opportunities in Asia, the Middle East and Eastern Europe. Besides India, it operates in Hong Kong, Thailand, Israel, Ghana, Paraguay, Sri Lanka and Macau.

But it is HTIL's business in India, where it holds roughly 15 percent of the 52 million-user market, that offers the greatest promise. Only five in 100 people in India have a cellphone, compared with over a quarter in China, the biggest mobile market.

"There is certainly capacity in the market up to 250 million, and we see ourselves getting certainly a fair share of that," said Chief Financial Officer Tim Pennington.

BIG COUNTRY, GROWING FOOTPRINT

HTIL's Indian arm operates in 13 of India's 23 cellular regions, or circles, and is looking to broaden its footprint in the world's most rapidly expanding major mobile market.

"We believe there are licence areas that we're not currently in that we should be in, that offer the returns that we would expect for allocated capital," Pennington said.

Though India has the world's lowest tariffs, it is profitable given high volumes, low costs and few handset subsidies.

HTIL's 2004 EBITDA margin (earnings before interest, taxes, depreciation and amortisation) in India was 31 percent, compared with 33.3 percent for rival Bharti Tele-Ventures, which is 28 percent owned by Singapore Telecommunications.

Because it has a higher percentage of big-spending contract customers -- about 30 percent of its total -- Hutchison's monthly ARPU (average revenue per user) is the highest in the market, at about 589 rupees (US$13.45), versus 519 rupees for Bharti.

The fragmented Indian market is led by Reliance Infocomm, Bharti, Hutchison, Idea Cellular, Tata Teleservices and state-run Bharat Sanchar Nigam Ltd. Consolidation is expected to accelerate after India raised the foreign investment limit in carriers to 74 percent from 49 percent in February.

"You've got emerging six larger players in India," Pennington said. "I can see those players getting stronger as time goes by."

HTIL holds 56 percent of its India business -- including 14 percent indirectly. It said it won't necessarily lift its stake in its India business now that it can do so, but it didn't rule out such a move, either.

HTIL is awaiting further details on India's decision to increase the cap on foreign holdings. That uncertainty also weighs on the timing of the planned IPO.

"Things have not been clarified by the end of March," said Lui. "Because of that, we definitely feel that a June IPO date is not viable. But we will do what we can do, and see if we could actually try and do a listing, say, by the third or fourth quarter."

HTIL plans to sell 10 percent of the enlarged capital in its India business through a domestic listing. Proceeds will be used to fund the company's growth.

BEYOND INDIA

Pennington said HTIL believes the opportunity for it to expand in Latin America has passed. In Africa, he said, the Ghana operation gives HTIL a beachhead for future growth, although the continent is not currently ripe for the company to expand there.

"Asia's our home market and that's where we still see opportunities," he said, adding: "We will continue to look at opportunities in the Middle East and Eastern Europe."