Max India In Trend-Setting Deal
Analjit Singh, the Indian promoter of Hutchison Max Telecom Ltd the Mumbai cellular licensee has completed one of the largest deals in the history of corporate India by selling his 41 per cent stake in Hutchison Max for Rs 563 crore to a new joint venture, in which Hutchison Whampoa of Hong Kong will hold 49 per cent.
The agreement, the first known case of a leveraged buy-out (an acquisition funded heavily through debt) in India, was signed yesterday in Mumbai and leaves Max Tele Ventures 92 per cent held by Max India with only 10 per cent in Hutchison Max. Kotak Mahindra Capital Company (KMCC), the advisor to the deal, will hold 51 per cent in the new joint venture, Telecom Investment India Ltd, through one of its subsidiaries. Hutchison Whampoa will hold the rest through its subsidiary, CGP India Investments. Hutchison Whampoas total stake in the cellular venture, both direct and indirect, will be 69 per cent.
The deal is the largest struck by an Indian promoter and eclipses previous sell-outs like Raymonds proposed sale of its steel plant to German major EGB for Rs 413 crore and India Cements buy-out of Raasi for Rs 380 crore. While Hutchison Whampoa and KMCC will invest a total of Rs 5 crore in its equity, TIIL will also issue preference shares worth Rs 560 crore to Hutchison Whampoa. Dividend pay-outs from Hutchison Max Telecom Ltd will finance the interest payment on the preference shares.
The deal is structured in two parts. Forty per cent of Max Tele Ventures stake was sold for Rs 549.51 crore, while one per cent was sold for Rs 13.49 crore.
Max India sources refused to reveal whether the proceeds of the deal would be transferred to the capital reserves of Max India, a pharmaceutical company or elsewhere. This, they said, would only be decided after a meeting of the companys board of directors.
However, Max India chairman Analjit Singh hinted that the Rs 560 crore may come into Max India. This transaction opens up a world of opportunity for Max and will set a paradigm shift in the investment outlook for Max. The Hutchison Max disinvestment will provide a large fund base for the company to look towards newer and exciting opportunities focused more on value creation, he said.
The sale of 41 per cent to Hutchison Whampoa and Kotak Mahindra puts the value of the Mumbai cellular licensee at Rs 1,340 crore (about $340 million). Analysts have been valuing the Mumbai cellular companies (BPL
Mobile holds the second cellular licence) at between $325 million and $400 million.
The valuation of a telecom services company represents the price a buyer would be willing to pay for the business and is arrived at by discounting future revenues. The present value of future cash flows divided by equity capital gives the price per share. This price minus the face value of the share is the premium an investor would be willing to pay.
Hutchison Max offers its cellular service in Mumbai under the Max Touch brand. The service has the largest number of cellphone users subscribing to it estimated close to 140,000. It records a usage of about 180 minutes a subscriber per month, among the higher airtime usage rates in the country.
The Mumbai cellular market has been among the more lucrative ones in the country due to a relatively high airtime usage (as compared to some 130-140 minutes average usage a month in Delhi) and lower unpaid bills. Hutchison Max and BPL Mobile have unpaid bills between 4.5 and 6 per cent of gross revenues.