Hughes Pulls Out Of Indian Joint Venture

US-based Hughes Network Systems (HNS) has informed its Indian partners, the Mittals of Ispat, that it is pulling out of the proposed basic services telecom venture in Maharasthra and Goa.

Sources in the Washington based company said Hughes has written a letter to Mittals explaining the reasons behind the move. The Mittals and HNS are expected to officially notify the Department of Telecom (DoT) shortly. Executives of the Indian venture, Hughes Ispat Ltd, are yet to be informed.

Hughes-Ispat is a 51:49 joint venture between HNS and Nippon Denro Ispat, controlled by the Mittal brothers, P K Mittal and V K Mittal. The company was expected to kick-off its basic service operations by October this year.

 

While Hughes is no hurry to sell its 49 per cent stake, it has frozen all its investment in basic services in India. They are likely to wait for Ispat to make up its mind on the future of the joint venture.

Raju Patel CEO of Hughes Ispat had earlier denied any plans of a pull-out by HNS. "Our partner's commitment remains firm," he had told Business Standard last week. "Hughes Network is not pulling out of the Indian venture. We have already spoken to the HNS officials in US, and even they have denied such a move," he added.

Reports that Hughes is pulling out of India spilled out in the American media last week.

Hughes sources clarified Hughes' other venture with Delhi-based Escorts group for VSATs may not be affected, but this could not be confirmed.

Sources close to both companies said Hughes could still provide some technical support, which would be charged.

The decision leaves Ispat, which owns 51 per cent of Hughes Ispat, in a limbo as they will now have to scout for a new partner. HNS and Ispat had formed this 51:49 venture to implement basic services project. It got the license in 1997 to operate basic serices in Maharashtra and Goa.

HNS's move was expected for some time after it stopped investments when the United States imposed sanctions on India in May. The downturn in the domestic telecom industry had forced a rethink on Hughes' priorities and the basic services venture was immediately placed on the chopping block.

According to sources close to Hughes, DoT cannot intervene in this issue. "DoT can intervene only when Hughes Network sells its shareholding to a company that has no experience in the telecom sector." In other words, DoT's clearance is needed only when Ispat find another partner for its telecom project.

The immediate fallout would see Hughes Ispat would have to forfeit the bank guarantee to DoT and pay the difference in the license fee _ if the Maharashtra circle, in the fourth round of bidding, attracts less licence fee than the one bid for by Hughes Ispat.

Mittals have three options left _ pull out of basic telecom services completely, hunt for a foreign partner or raise funds through some financial institutions/instruments.

However, it is reliably learnt that Mittals will soon be hunting for a US telecom partner, to get going with its project in Maharashtra and Goa.