Reliance Communications’ formal offer is in association with private equity firms Blackstone and Texas Pacific.
Ajoy K Das & Nivedita Mookerji
KOLKATA/NEW DELHI: Reliance Communications’ formal offer, in association with private equity firms Blackstone and Texas Pacific, to buy out the promoter holdings in mobile operator Hutchison Essar could come as early as next week.
Since both partners in Hutchison Essar - Hongkong magnate Li Ka-Shing’s Hutchison Telecommunications International and the Ruias of Essar - have the right to first refusal in case one of them wants to sell, the dealmakers are working on a package that will involve buying both of them out simultaneously. While the 67% Hutchison holdings could cost $ 9 billion, buying the Ruias’ sub-33% stake will cost another $4.5 billion, taking the total deal size to around $ 13.5-14 billion.
That’s the main reason why Ambani is roping in the big private equity firms. Blackstone India chief Akhil Gupta is close to the Reliance group, and has been Mukesh Ambani’s friend.
Reliance Communications officials refused to comment on any possibility. Sources in Hutchison Essar, too, declined comment, saying that Li Ka-Shing was committed to the Indian market, but a source close to the development admitted that Hutchison was “considering proposals, and there is never smoke without fire.” He added: “Once the two parties agree on a deal, “deal-sheets can be done within hours.”
What is already known is that the Anil Ambani flagship has mandated UBS to act as advisors to the deal, with ABN Amro, Citibank and Standard Chartered Bank acting as its consortium of bankers. This consortium has already extended a five-year debt facility of $ 1 billion. Sources said that Reliance Communications is looking to raise further credit lines of $3-4 billion to fund the equity stake purchase in Hutchison Essar.
Merchant bankers said that it could take months for a successful bid to go through, but there’s no denying the high stakes involved. The purchase of Hutchison Essar will give Anil Ambani an additional 17% market share in the Indian mobile telephony market.
Hutch is ranked fourth after Bharti Airtel, Reliance Communications and state-run Bharat Sanchar Nigam. Reliance Communications plus Hutch would be numero uno by far, with a subscriber base of over 45 million.
Sources in the telecom industry say that Sunil Mittal of Bharti cannot be ruled out as a potential rival to the Anil Ambani bid. Nor can Malaysia’s Maxis, which holds 74% of another telecom operator Aircel.
A Bloomberg report, quoting “two people with direct knowledge of the transaction”, adds that Blackstone Group LP, manager of the world’s biggest buyout fund, and Reliance Communications may offer about $14 billion to buy Hutchison Essar Ltd.
The addition of subscribers at more than double last year’s pace has boosted values of telecommunication operations in India, with shares of Reliance Communications and Bharti Airtel Ltd outperforming the Bombay Stock Exchange Sensex.
“There has never been a better time in the Indian telecom industry’s history,’’ said Shubham Majumder, an analyst at Macquarie Securities in Mumbai. He rates Bharti Airtel as a potential outperformer on the market. “The market is on the cusp of huge growth over the next two to three years.’’ Shares of Reliance Communications rose 4.3% to a record in Mumbai, valuing the company at $21 billion.
Ada Yeung, Hong Kong-based spokeswoman for Hutchison Telecommunications International Ltd., declined to comment. Vikash Saraf, chief executive officer of Essar Teleholdings Ltd in Mumbai, also declined to comment.
Hutchison Essar, which began operations in 1994 with a cellular licence for India’s commercial hub of Mumbai, ended November with 22.3 million subscribers. The company’s one million new users last month gave it a market share of almost 16%. It currently operates in 16 of India’s 23 designated telecommunication zones.
The big prize
Anil Ambani with Blackstone and Texas Pacific may be the frontrunner
Sunil Mittal and Malaysia’s Maxis could also be among the bidders
If Ambani gets it, he will be numero uno by far in Indian telephony
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