Global Insight Perspective | |
Significance | Three telecoms groups, as well as several private-equity investors, have been reported to be eyeing a stake in Hutchison Essar. |
Implications | Hutchison Essar, which is India's fourth-largest mobile operator, presents a lucrative investment opportunity for both strategic and financial investors, given the fact that significant growth potential still remains in India's mobile market. |
Outlook | Although neither HTIL nor Hutchison Essar has given a clear comment on the matter, HTIL seems to have little incentive to sell its Indian mobile assets, as Hutchison Essar contributes a majority of the group's mobile subscriber base and remains the biggest growth driver for the group. |
The Press Trust of India news agency reports that Reliance Communications, Malaysia's Maxis Communications and Egypt's Orascom Telecom have bid to buy HTIL's 67% stake in Hutchison Essar. The newspaper cited bankers as saying that Hutchison Essar was valued at as much as US$14 billion. Previous media reports have said that private-equity firms Kohlberg Kravis Roberts & Co, Texas Pacific Group and Blackstone have held talks with the Anil Ambani group, which controls Reliance Communications, to try to form a partnership to bid for Hutchison Essar. Meanwhile, Bharti Airtel—India's largest private telecoms operator—stated that it is not in the race for Hutchison Essar, the Business Standard quoted the company's chairman, Sunil Bharti Mittal, as saying. The Ruia family, which controls the Essar group of companies, owns a 33% stake in Hutchison Essar and has first rights to buy the stake held by HTIL.
Outlook and Implications
Hutchison Whampoa, the parent firm of HTIL, has been surrounded by speculation regarding potential asset sales. It has also been reported that the company could sell its 3 Group mobile business. Although it has insisted that it will not sell 3 Group, there can hardly be any justification not to sell if its recently-launched X-Series mobile broadband strategy flops (see World: 22 November 2006: Speculation Deepens on Hutchison Whampoa's Possible Sale of the 3 Group). However, the group's Indian business seems to present a much more promising growth prospect than its 3G businesses across Europe.
HTIL is likely to want to sell its Indian mobile assets eventually, but the possibility of a sale at this point remains questionable. Given the fact that significant growth potential still exists in the Indian mobile market and Hutchison Essar remains the biggest growth driver for HTIL, the Hong Kong-based mobile group seems to have little incentive to sell now. Hutchison Essar added a net of 2.8 million mobile subscribers for the quarter ending 30 September 2006. Its total customer base more than doubled from a year earlier to 20.4 million at end-September, accounting for approximately 77% of HTIL's 26.5 million total subscriber base. In addition, Hutchison Essar has recently received approval from the Indian government that will allow it to expand operations into six licence areas. The operator was also said to harbour an ambition to acquire licences to offer its mobile services in all Indian telecoms circles. Nevertheless, the US$14-billion offer price could be tempting, but it is questionable whether this could offer enough incentive for HTIL to sell, as the Hong Kong-based company should not be short of cash. Although management tensions between HTIL and Essar are apparent—which has led HTIL to drop a long-planned IPO of Hutchison Essar in India—this does not seem an adequate reason for HTIL to sell its stake.
Global Insight has seen a heated acquisition wave in India's telecoms market during 2005/2006. Although the market remains a lucrative investment opportunity for telecoms groups and financial investors, very few existing shareholders are now willing to sell their holdings, as the industry remains confident that the current strong growth momentum will continue.