Hutch and the fight for telecom dominance

Rex Mathew
29 December 2006

Reliance Communications, Vodafone and Essar are the frontrunners in the race for Hutch-Essar for an enterprise value of around $21 billion. What are their real interests and are they willing to pay too much?

Hutchison Essar has suddenly become the hottest telecom asset on the block, anywhere in the world, and for very good reasons, too. India is the hottest telecom market in the world, having overtaken China in monthly subscriber additions, and Hutch is one of the larger players in the country. Hutch also enjoys a premium brand image and has the highest average revenues per user (ARPU) among all domestic telecom companies.

Hutchison Telecommunications, the telecom arm of Hong Kong-based Hutchison Whampoa, has announced its intention to sell off the majority stake it holds in Hutch-Essar. It has invited bids from potential buyers, which include global telecom giant Vodafone, US-based private equity funds, domestic major Reliance Communications and the Essar group, which currently owns 33 per cent of Hutch-Essar.

Hutchison has reportedly rejected indicative bid of around $13.5 billion from Malaysia's Maxis Communications and US-based private equity firm Texas Pacific.

Hutchison has set a minimum cut-off of $14 billion for its holdings in Hutch-Essar, which would value the company at nearly $21 billion. But that has not deterred the potential suitors who have already lined up billions of dollars from international banks for their bids.

Though names like Singtel, Deutsche Telecom, France Telecom, Telstra, NTT DoCoMo and Telenor are also doing the rounds, the frontrunners are Reliance Communications, Vodafone and Essar. Maxis may consider a higher bid but may not be willing to take it very high. Egyptian company Orascom had ran into a security controversy in India over its indirect minority holdings in Hutch-Essar as Orascom also has a presence in Pakistan.