Essar parks BPL firms' stakes with Hutch JV

Deal is for enterprise value of around Rs 5,060cr.

Barely two months after acquiring a majority stake in BPL's cellular business, the Essar group signed an agreement to sell BPL Mobile Communications and BPL Cellular to Hutchison Essar, its joint venture with Hutchison Telecommunications International.

The deal is for an enterprise value "" combination of the value of equity and debt "" of $1.15 billion (Rs 5,060 crore). In addition, the Essar group will also sell Essar Spacetel, the company that has applied for licences in seven telecom circles, to Hutchison Essar for $6 million (Rs 27 crore) .

These acquisitions are set to increase the number of Hutchison Essar's customers to over 12 million and will help the company get a pan-India footprint. At present, Hutchison Essar has over 9.3 million customers and operates two brands "" Orange in Mumbai and Hutch in rest of the country. Hutchison holds 53 per cent and Essar around 30 per cent in the venture.

Hutchison Essar will fund the acquisitions through a combination of shareholder funding and bank borrowings. Ravi Ruia, director of Hutchison Essar and vice-chairman of the Essar group, said, "The consolidation of BPL's mobile services and Essar Spacetel with Hutchison Essar is another significant step towards making it one of India's most valuable companies.

Hutch and BPL Mobile are among India's strongest mobile franchises and the synergy that this consolidation will bring is bound to offer high value and help us gain market share in every territory.'

Vikas Saraf, the CEO of Essar Teleholdings, said Hutchison Essar would apply to the authorities. When asked, he said Hutchison Essar did not buy out Rajeev Chandrasekhar's majority stake in BPL Communications because 'it was a complicated deal, involving regulatory and other issues'. Essar Teleholdings is Hutchison's JV partner in Hutchison Essar.

Over the past two months, the Essar group had consolidated its holdings by buying out TPG Nambiar's 13 per cent stake in BPL Communications. It gave the group a holding of 77 per cent, a shade over two-thirds majority. Holding 76 per cent stake is important to carry a special resolution.

At the time of acquisition of the 64 per cent stake in BPL Communications two months ago, the Essar group had said that BPL Mobile would be merged with Hutchison Essar. Prashant Ruia, director of the Essar Group, had told Business Standard that the group would fund the acquisition through internal accruals.

Ruia had also said the acquisition would not violate the department of telecommunications' regulations which did not allow a telecom operator to have more than 10 per cent stake in firms operating in the same circle (Hutchison and BPL both operate in Mumbai).

Dennis Lui, the director of Hutchison Essar and chief executive officer of Hutchison Telecommunications International, said, 'These are defining acquisitions for Hutchison Essar. By giving us the ability to complete our nationwide coverage, they position us to capitalise on the tremendous growth opportunities in India.'

'This is a major investment for Hutchison Essar and clearly signals the commitment of its principal shareholders, Hutchison Telecom and the Essar group, to being a major force in shaping the mobile telecom scene in India,' added Lui.

CHART

July 21: Essar signs agreement to buy Rajiv Chandrasekhar's 64 per cent stake in BPL Communications.

August 4: Hutchison says it is 'exploring ways' to acquire two units of BPL Communications with Essar

September 12: The Essar group scales up holding in BPL Communications to 77 per cent

September 26: Essar agrees to sell two BPL firms and Essar Spacetel to Hutchison Essar, its JV with Hutchison.