Hutch, Essar spar over stake valuation

Soon after the Tatas and Birlas fought a pitched battle for control of Idea Cellular, it8217;s the turn of the Ruias of the Essar group...

Soon after the Tatas and Birlas fought a pitched battle for control of Idea Cellular, it8217;s the turn of the Ruias of the Essar group and Li Ka-shing controlled Hutchison to differ over the valuation of India8217;s third-largest wireless telephony firm, Hutchison Essar Ltd.

Sources say Hutchison 8212; which holds 67 per cent stake in the Indian company 8212; is keen to take total control over the company before it goes ahead with the initial public offer IPO of up to Rs 2,500 crore to the Indian investors.

The hitch, however, is Essar 8212; which currently holds 33 per cent stake in the company 8212; says its shares are not up for sale. Instead, it has upped the ante by objecting to the changes in the equity structure of Hutchison8217;s parent company based in Hong Kong.

Last December, Orascom Telecom of Egypt had bought 19.3 per cent interest in Hutchison Telecommunications International Ltd for 1.3 billion. With Hutchison buying Hinduja8217;s 5.1 per cent stake for 450 million, the Hong Kong-based HTIL now holds 67 per cent stake and controls the management of the company.

The Hinduja deal had valued Hutchison Essar at 9 billion and that makes Essar8217;s equity worth 3 billion around Rs 13,800 crore. The Ruias, on the other hand, value their stake at 4 billion Rs 18,400 crore and the company at 12 billion 8212; taking the subscribers8217; base and Bharti8217;s market cap into consideration.

When contacted, Essar reiterated that its shares are not up for sale. 8216;8216;There is no discusssion or intention on our part to do any sale,8217;8217; said Vikas Saraf, CEO of Essar Teleholdings Ltd. 8216;8216;We have issues only on Orascom8217;s entry into the company,8217;8217; he added. Hutch did not comment on an email query sent on this issue.

Telecom analysts feel Hutch should have consolidated its stake in the company years ago. 8216;8216;Essar8217;s stake can be valued at around 20 per cent discount to Bharti8217;s valuation as Hutch8217;s subscribers addition is not growing as fast as Bharti,8217;8217; said Animesh Singh, telecom analyst with Karvy Securities. 8216;8216;Valuation will be the key to this entire fight,8217;8217; he added.

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On the much-awaited IPO, Hutch sources say till the issue of equity structure of the company is sorted out between the promoters there will not be any progress on the IPO front. 8216;8216;We are however confident that all the issues raised by Essar will be sorted out soon,8217;8217; a Hutch source said seeking anonymity. 8216;8216;It8217;s just a matter of time.8217;8217;

In a letter to the FIPB, Essar officials had sought clarifications on whether Orascom8217;s investment in HTIL meets the Indian government8217;s regulations on foreign investments into the telecom sector. Besides, Essar asked why the government was not made aware of Orascom8217;s indirect holding in Indian company.

The FIPB was to take up the Hutch application last week made by Hutchison on changes in equity structure but the board has decided to postpone a decision. Both Essar and Hutch say they have not yet heard from the FIPB on the issue.