Hutch in bag, Vodafone dials Bharti Airtel

A day after Vodafone bagged Hutchison Telecommunication International Ltd's 67 per cent stake in Hutchison-Essar for $11.1 billion, the British company is strengthening ties with its former partner Bharti Telecom, India's largest private telecom company.

The two companies have agreed to easy buy-back terms for Vodafone's stake in Bharti, an inbound roaming deal and an infrastructure-sharing arrangement.

Vodafone is divesting its 5.6 per cent holding in Bharti Airtel, which is co-owned by industrialist Sunil Mittal's family and Singapore Telecom, as a matter of "corporate propriety" to other shareholders, according to a key executive involved in the deal.

Bharti Airtel will acquire Vodafone's 5.6 per cent stake at approximately a 25 per cent discount over existing valuations, said B Srinivas Rao, an analyst with Deutsche India Equities. At $1.6 billion, however, this is double the price Vodafone originally paid.

Vodafone will continue to hold a 26 per cent interest in Bharti Infotel Pvt Ltd, which is equivalent to an indirect 4.4 per cent financial interest in Bharti Airtel.

Bharti and Vodafone have set an outer limit of 18 months to conclude this transaction. The deal will take place after the UK company completes its acquisition of Hutchison-Essar, which it won against bids from Reliance Communications, the Hindujas and Essar, which is the company's 33 per cent partner.

Vodafone expects the deal to be completed by the second quarter of calendar 2007 and Rajan Mittal, joint managing director, Bharti Airtel, said the company will exercise the option to buy back its stake after that.

In addition, the agreements initialed by the two companies will see Vodafone leverage Bharti Airtel's long-distance networks and leased line infrastructure and offer 50 per cent of Vodafone's inbound roamers preferred status on the Bharti Airtel network.

Vodafone Chief Financial Officer Andy Halford said today the impact of the infrastructure-sharing pact would result in "combined benefits of around $1 billion over the next five years."

He added that Hutch-Essar would increase its market share to 20-25 per cent by 2012, from 16.4 per cent at present, by expanding network coverage, especially in rural areas. The deal values the Hutch-Essar enterprise at $18.8 billion. Vodafone will also assume a debt of $2 billion.

Meanwhile, at an analysts' meet in London today, Vodafone announced some key details of its India strategy.

As a first step, the company plans to make significant investments in upgrading Hutch-Essar's network, while continuing to invest in accelerated distribution rollout, especially in new areas.

It has also set a target of increasing its radio-infrastructure sharing with other operators, including Bharti Airtel.

Vodafone will initially retain a dual brand-name, which will subsequently become Vodafone. The company said that it will also pay the price-warrior game by "introducing ultra-low cost handsets," besides bringing its other global offerings like mobile payments to India. This will make Hutch the only operator in India to be "integrated" with an international mobile company.

CEO Arun Sarin, who will meet Communications Minister Dayanidhi Maran at the 3GSM conference in Barcelona on Tuesday and visit India soon, said the price paid for Hutch-Essar reflected the "control premium".

Vodafone will continue with the management led by Hutch-Essar Managing Director Asim Ghosh, who is expected to report to Paul Donovan, chief executive of the emerging markets and Asia Pacific region for Vodafone. Vodafone may appoint the same directors "" Donovan and Gavin Darby "" who sat on Bharti's board to the Vodafone-Hutch board.

Much will depend on whether Essar will sell or remain in the company. Indian telecom regulations require 26 per cent to be held by Indian investors in a telecom services company.

If Essar decides to sell to Vodafone, both local minority partners, Ghosh and Analjit Singh of Max, have agreed to increase their combined interest in Hutch-Essar from 15 to 26 per cent.

Meanwhile, Prashant Ruia, managing director of Essar group, said the group would take a call on its course of action in a few days.