Essar may seek to raise Hutch Essar stake

Himangshu Watts and Santosh Menon

MUMBAI/LONDON: Essar Group, which owns 33 percent of Hutchison Essar, may seek to raise its stake in the No. 4 Indian mobile carrier and wants joint management after Vodafone completes its buyout of a 67 percent stake in the firm.

British-based Vodafone reached an $11.1 billion deal last week to buy a controlling stake in Hutchison Essar from Hong Kong-based Hutchison Telecom International Ltd.

Since then it has held discussions with the Ruia family which controls Essar about a possible partnership. It has also offered to buy the Indian group's stake at the price it paid Hutchison, but Essar has said it wants to stay on in the fast-growing telecoms industry.

"We are not just a portfolio investor. We want joint management of the joint venture," Vikash Saraf, chief executive of Essar's telecoms business, told Reuters in an interview on Monday in Mumbai. "We may seek higher shareholding."

His boss Prashant Ruia, a director of the group and the son of Essar group chairman and founder, said in a separate interview in London that Essar could bring its knowledge of the Indian market to its future partnership with Vodafone.

"They (Vodafone) have a huge amount of experience in developed markets. But when it comes to emerging markets we have a lot of experience because we have been involved in it for the last 11 years. We understand India. It is a good combination for building value in the future," Ruia said.

Ruia rejected media reports that Essar was angling for a price higher than what the UK group plans to pay Hutchison, and that it was a troublesome partner, as speculative and wrong.

Essar has consistently maintained that it had the right of first refusal if Hutchison were to sell its stake, a claim Hutchison says only applied in the case of local firms.

Essar and Hutchison had been locked in disputes in recent years, most notably over the merger of the assets of rival group BPL's assets into Hutch Essar and the Hong Kong-based group's decision to bring Egypt's Orascom Telecom as a shareholder into a the holding company that controls Hutch Essar.

The Essar group bought the operations of BPL in July 2005 and sold all but one to Hutch Essar. It says the government blocked a deal for BPL's Mumbai operations as both BPL and Hutch Essar were dominant players in the same market.

That was disputed by Hutchison and led to worsening relations between the two partners, and eventually the Hong Kong-based group's decision to exit the business.

Ruia downplayed suggestions Essar's partnership with Hutchison was unsuccessful, saying that in seven years the sides managed to raise Hutch Essar's valuation to $18.8 billion including debt from just $800 million.

"If this is not a successful partnership, then what is?"

Ruia said details of the group's role in the partnership with Vodafone, including the number of directorships or its branding, were yet to be discussed, although talks would cover the status of the BPL operation in Mumbai.

"That (BPL) could be one of the areas which would need to be ironed out... It has to be. It will be," he said.

Ruia said the Essar group, which also was one of the bidders to buy the controlling stake in Hutch Essar, was keen for a "constructive partnership" with Vodafone.

Vodafone Chief Executive Arun Sarin held talks with the Ruia family in Mumbai last week, following which the Essar group announced its intention to stay on in the business.

India is the world's fastest-growing major mobile phone market, and the acquisition is expected to help offset slowing growth in Vodafone's core European operations.

Hutchison Essar added 1.11 million customers in January, lifting its user base to 24.41 million.