RelCom gets serious for Hutch bid

MUMBAI - Reliance Communications on Thursday declared its interest in mobile operator Hutchison Essar, as other bidders jostled for position in an estimated $17 billion takeover tussle.

Reliance Communications, India's second-biggest mobile services provider, had been singled out by Indian media as an early contender for its smaller rival, and Chairman Anil Ambani said on Thursday it had received

commitments from global bankers for support for a potential bid.

"Reliance Communications, as part of its overall growth strategy, continues to examine all organic and inorganic opportunities. Hutch Essar is one such situation," he told a news conference.

"A potential combination of this nature could create compelling value and fit nicely with our GSM strategy."

Ambani said there was no certainty on the timing of a bid and declined to say how much the firm would offer, saying it would remain within a "conservative limit".

Ambani said a "vast majority of the top 10 private equity funds" had aligned with it for a bid and Reliance

Communications would not consider diluting founders' stakes.

Sources familiar with the matter said U.S.-based private equity giants Blackstone and Kohlberg Kravis Roberts were working on bids for Essar and may team up with Reliance. One source added that KKR may yet choose to bid with another suitor.

KKR declined to comment.

Earlier, media reports said India's Essar group, which holds 33 percent in the joint venture with main shareholder Hutchison, had approached one potential bidder, Britain's Vodafone Group Plc, about a carve-up deal.

Other reports have said Essar wants to buy out the whole business in a deal valuing Hutchison Essar at $17-$18 billion, while the Financial Times said Vodafone had made a solo bid with a similar valuation.

An $18 billion offer would imply an enterprise value some 27 times estimated 2006 earnings before interest, tax, depreciation and amortisation -- more than double the valuation of Reliance Communications, Goldman Sachs reckoned.

BIDDING FRENZY

Hutchison Telecommunications International relies on India and its 67 percent Hutchison Essar stake for an estimated four-fifths of operating income. The Hong Kong firm is expected to end 2006 in the black after a hefty 2005 loss.

Analysts have urged it to set a high price on any exit from India's vibrant telecoms sector and say mobile

penetration in India could double over two years from 12 percent now, and triple in four years.

Indian government expects 180 million mobile phone users by end-2007, up more than 25 percent from 143 million now.

Goldman Sachs analyst Helen Zhu argued in a report last week that the business was the crown jewel in its owner's portfolio.