Stalemate ; with Valuations at Their Zenith, the Timing Couldn't Have Been Better for Hutchison Essar to Go Ahead with an Ipo. So Who's Spoiling the Party?

Business Today › April 24, 2006

Linked as:

Summary

Is all well between Hutchison and Essar? That's a question that has been doing the rounds for a couple of weeks now. If the buzz in Mumbai's investment banking circles is anything to go by, things are not hunky-dory between the two partners that make up Hutchison Essar, the mobile telephony joint venture (JV) that operates in 16 circles in India. Hutchison Telecommunication International Ltd (HTIL) directly holds a 42.34 per cent stake in the JV, and 19.5 per cent indirectly (see Who's The Boss?). The Ruias of the Essar group control 33.05 per cent, and could be in the hunt for 5.11 per cent more, currently held by the Hindujas. Even if Essar does move up to 38.2 per cent, Hutchison clearly calls the shots, being the largest shareholder on the basis of its direct holding; the indirect holding comfortably takes the Hong Kong telecom firm beyond 51 per cent, ensuring management control.

So, where lies the rub? If one section of observers is to be believed, the Ruias have sensed a lucrative opportunity in telecom, and are keen to control India's third largest cellular service provider (after Bharti and Reliance). Hutchison on the other hand feels that, given the high valuations in the telecom space, the time is ripe for an initial public offering (IPO), which will help unlock the value in the JV, and provide the much-needed capital for future growth-investment bankers estimate Hutch-Essar's valuation at Rs 45,000 crore, and even a 10 per cent equity dilution will help the company raise Rs 4,500 crore. However, the IPO which has been in the works for over a year now, is in limbo.