Hutchison mulling HTIL stake sale to blunt Essar's edge

Rex Mathew
16 January 2007

The battle for acquiring a controlling stake in Hutch-Essar and the dispute between Hutchison Whampoa and the Essar group has taken a very interesting turn. If reports are to be believed, Hutchison may have found a way to make Essar Group's right of first refusal in Hutch-Essar ineffective.

The Wall Street Journal has reported that Hutchison has offered to sell its majority stake in Hutchison Telecommunications International (HTIL), which in turn holds a majority stake in Hutch-Essar, to potential bidders.

If the report is true, bidders like Vodafone and Reliance Communications have been offered an option to control Hutch-Essar indirectly through HTIL. Such an offer would considerably weaken the bargaining power of the Essar Group.

Though the Essar Group has publicly stated its interest in acquiring Hutch-Essar and has reportedly submitted a $14-billion bid, most industry observers believe that its real interest is to drive up the valuation and sell its 33-per cent stake at the best possible price.

Hutchison and Essar are currently involved in a dispute over the right of first refusal. While Essar maintains that its right covers all stake sales by Hutchison, the Hong Kong group contends that the right is applicable only in the case of a stake sale to any of the major domestic telecom companies.

Hutchison is believed to have informed potential buyers about its position and Essar is reportedly even considering a legal battle to settle the issue. While HTIL and associates like Analjit Singh of Max India and Hutch-Essar CEO Asim Ghosh control 67 per cent of Hutch-Essar, the Essar Group holds the remaining stake.