Dial S for Stalemate

As Hutch and Essar await a court verdict on BPL8217;s Mumbai circle, valuation will ultimately decide the fate of the venture, reports DEV CHATTERJEE

Hutchison Essar Ltd, the country8217;s third-largest wireless telecom player, is busy fighting a messy court battle with its partner which would delay its planned listing in the Indian bourses and threatens to shift management focus into promoters8217; infighting.

Last week, Hong Kong8217;s Hutchison took its equity partner Essar8212;with interests in shipping, oil 038; gas to steel8212;to the courts alleging that the latter has reneged on its promise to merge BPL Mobile8217;s Mumbai circle with it in spite of taking Rs 1,600 crore in cash.

8216;8216;I fail to understand why Essar is bent on killing the golden goose,8217;8217; said a Hutch official. 8216;8216;The company is doing so well in terms of revenue and profitability,8217;8217; he says on conditions of anonymity.

Essar, on the other hand, says Hutch failed to take permission from the Indian government for the merger, which could result in BPL Mobile losing its licence. 8216;8216;It8217;s the question of attitude,8217;8217; said an Essar official. 8216;8216;They did not inform us till the last minute that they have sold the stake in Hutchison to Orascom of Egypt,8217;8217; he added.

As both partners await the court judgement on how to go forward with arbitration, insiders say in spite of the ego hassles between the owners, it will finally be the valuation which will play a key role in the issue getting resolved. In business, after all, cash is the biggest talker.

What went wrong?

The recent telecom transaction shows that valuations of Indian telecom players have touched the roof. The Hinduja Group sold its 5.1 per cent stake in Hutchison Essar for 450 million, thus valuing the entire company for close to 9 billion. Essar was also in the race to buy Hinduja8217;s stake but could not arrange the cash. With the Hinduja8217;s stake in its pocket, Hutch now wants to take complete control over the company and is ready to buy a reluctant Essar8212;which holds 33 per cent stake in Hutchison Essar8212;out.

Hutch sources say till they do not consolidate their holdings, they would not come out with any share sale plan. Essar, on the contrary, says its stake is not up for sale. To this, Hutch insiders says it8217;s a matter of time before the Ruias sell out.

Story continues below this ad

As per the agreement between the two last December, Hutch Essar could even sell BPL Mobile to a third party at a higher rate and retain the profits. Essar8212;seeking a better deal for its shares in both BPL and Hutch Essar8212;has now upped the ante.

What next?

With the promoters8217; fighting an acrimonious court battle and Hutch even offering offer letters to the top employees of BPL Mobile, the battle has certainly reached its lowest point. Hutchison, which has an upper hand till now, however will have to face questions on security issues after Essar made complaints to every possible regulator in New Delhi.

Hutch is also planning to invest 1.2 billion in upgrading its telecom infrastructure and with its directors fighting in the board rooms, it will not be a smooth ride for the Hong Kong company. With competition from existing players like India8217;s No. 1 wireless firm Bharti and No. 2 Reliance only growing and Idea Cellular planning to roll out its services by January next, the faster the two companies sort out the issue, the better it is for the bank accounts of both partners.