Essar Group Plans To Exit From Telecom Business

The shipping-to-steel-to petroleum major Essar Group is planning to exit from its telecom business. This follows the group identifying telecom as a non-core area among its multi-faceted businesses and transfer of shareholder and management control to Swisscom in its cellular venture.

The group is understood to have chalked out a strategy under which it would make a gradual exit from its various telecom ventures depending on the `value acquisitions by the ventures and the market conditions'.

"We have identified telecom as a non-core area and have decided to get out of this sector. We will do it in a phased manner, depending on the market conditions," Essar Group chairman Shashi Ruia told Business Standard.

 

Essar, which has recently struck a deal with Swisscom for sale of 16 per cent equity in Sterling Cellular _ the cellular licensee in Delhi, Uttar Pradesh (East), Haryana and Rajasthan _ has again sought the government permission to offload another three per cent equity in the venture in favour of the Swiss telecom major which will give the latter shareholder and management control over all Essar group cellular ventures.

The proposal to sell the additional three per cent stake, which will be routed through Cellcom, a joint venture between Swisscom and Sphone, is currently pending with the Cabinet Committee on Foreign Investments (CCFI) for the final nod.

The Ruias are also considering getting out of their basic telecom venture (Essar Commvision) in Punjab. Essar holds 90 per cent stake in Essar Commvision through its various group companies and the rest 10 per cent stake is with Bell Atlantic.

Ruia, however, said that after the recent three per cent stake sell-off deal with Cellcom, the group is not in negotiations with anybody `right now' for any further equity offloading. "We will wait for the market to pick up so that we get the maximum value for our holding," he said.

However, apart from the changes with regard to telecom, Ruia emphasised that there will be no change in the other businesses of the group until year 2001. "Until then, we will be consolidating our businesses," he said.

Essar's stake in its cellular operating venture - Sterling Cellular, will come down to about 48 per cent once the sell off deal with Cellcom is completed. While Sterling Cellular directly operates the Delhi cellular circle, it operates the group's non-metro cellular circles through another venture namely Aircell Digilink.

According to industry sources, Essar's decision to exit from the telecom sector would bring twin gains to the group since, besides fetching a several-fold returns for its investments in the telecom business it would also help it to get finances from the financial institutions and banks for the group's other businesses.

Essar of late has been facing problems in getting finances from FIs and banks because of the latter's reluctance to take more exposure in the group.

In fact, at one point, Essar wanted to raise about Rs 700 crore for investments in its telecom operations and is understood to have approached the FIs in this regard.

The FIs, however, were prepared to extend any additional finances only if the government extended the licence period for cellular ventures to 15 years from the existing 10 year period.