Essar enters race for Hutch stake as Vodafone commences due diligence

Mumbai: Essar has announced its intension to buy out its foreign partner in Hutch-Essar even as the UK telecom giant Vodafone commenced due diligence for acquiring India's fourth largest mobile player.

"Yes, we are interested in Hutch. That is our company," Essar Group chairman Shashi Ruia said.

Vodafone has appointed Ernst and Young and UBS to help it examine Hutchison Essar's books and has flown in 15 executives of the UK firm to Mumbai for the purpose.

The announcement came within hours of a 20-member Vodafone team meeting HEL officials to start the process of due diligence.

Essar, which has a 33-per cent stake in Hutch Essar Ltd (HEL) has three directors on the JV company's board and thus access to all the operational, infrastructural and financial information about the joint venture, said it did not need to study the books.

When asked about due diligence process having started, a Vodafone spokesperson declined to comment "at this point in time". Meanwhile a spokesperson of HTIL, which has 67-per cent stake, declined to comment on negotiations.

A report, quoting sources close to the negotiations, said that access had been denied to Reliance Communications (RCOM) giving Vodafone "de facto exclusivity to pursue the deal." While a Vodafone spokesperson was not available for comment, an RCOM spokesperson declined to comment on the denial of access to Hutch-Essar's books.

During the next four days, the Vodafone team will look into the top-line and earnings multiples of HEL along with the customer base and cash flow figures that has been told to Vodafone for the sale of Hong Kong-based Hutchison Whampoa's 67 per cent stake in HEL.

The European Union has also pitched for Vodafone in its bid to acquire HEL with EU trade commissioner Peter Mandelson discussing the issue with commerce and industry minister Kamal Nath.

Hutchison Telcommunications International Ltd (HTIL), the company through which Hutchison Whampoa owns its stake in Hutchison-Essar, too refused to comment on the state of negotiations. An HTIL spokesperson had earlier said that Essar should be given right of first refusal only in the "limited case of a sale to certain Indian telecom companies. There is no refusal of first right (RoFR) over any other buyer."

Sources said under the agreement pertaining to RoFR, Essar can invoke its right only when HTIL's direct or indirect holding in Hutch-Essar dips below 40 per cent on account of sale to three Indian groups - Reliance, Tata and Bharti Airtel.

If Vodafone succeeds in clinching the deal, Hutchison Telecom, which owns 67 per cent stake in Hutch-Essar, would be able to complete the transaction without taking the consent of its Indian partner.