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Guessing game on Essar stand
Ruias get 21 days to decide on Hutch stake

Mumbai, Feb. 12: The Essar group has 21 days to take a call: whether it wants to stay with Vodafone as partner in Hutchison Essar, the country’s fourth largest cellular company, or sell its 33 per cent stake and walk off with a cool $5.6 billion (Rs 24,800 crore).

The Essar group has the right to ‘tag along’ its shares with the Hutchison Telecom stake sale — which means they will get the same price.

The acquisition of these shares will give Vodafone unfettered control over the company. Vodafone is planning to acquire the companies from HTIL that control a 67 per cent interest in Hutch Essar for a cash consideration of $11.1 billion. With Vodafone assuming net debt of approximately $2 billion in Hutch-Essar’s books, the transaction implies an enterprise value of $18.8 billion.

Under the proviso for the ‘tag-along’ right, the Ruias can sell their shareholding in Hutch Essar within 21 days after Hutchison decides to sell. Although the Ruias have not yet taken a decision, observers feel the conglomerate should accept the Vodafone offer.

Says Sumit Modi, telecom analyst with Emkay Research, “While the valuation of $18.8 billion looks a bit stretched, it is good for the Essar group. This could probably be a one-time opportunity for them. In the future, the group may not get a similar valuation.”

While Vodafone wants to have a larger say in Hutch Essar’s management, it also wants the Ruias to continue as “partners’’ as they have experience in the Indian telecom industry. Vodafone CEO Arun Sarin hinted as much in a conference call with analysts in London today.

“We’ve had quite extensive discussions with the Essars. We’ve made it very clear to the Ruias that we would like them to stay as partners,” Sarin said.

Of the 33 per cent interest held by the Essar group, close to 22 per cent is classified as foreign direct investment as it is held by an overseas company within the group.

It is here that two other gentlemen — Analjit Singh and Asim Ghosh — are also set to play an important role. While both Max India chairman Analjit Singh and Asim Ghosh together hold close to 15 per cent interest in Hutch-Essar, Vodafone today said that HTIL’s existing partners (Asim Ghosh and Analjit Singh) have agreed to retain their holdings and become partners with it. Analjit currently holds 8.75 per cent, while Ghosh, who is also the MD of Hutchison Essar, has 6.25 per cent.

As the current regulations in India limit FDI in telecom to 74 per cent, Vodafone’s plan is to first purchase 52 per cent of HTIL’s stake in Hutch Essar. If Essar decides to accept its offer, it could then buy its 22 per cent foreign stake. Sources say that in such a situation, both Analjit Singh and Asim Ghosh could purchase the remaining 11 per cent stake held by the Essar group.

Analjit Singh and Asim Ghosh received loans from Hutchison Telecom International when they bought out the Kotak group’s stake in early 2006. There is a good possibility that Vodafone might provide them with funds for the additional stake buyout again.

“I am in a privileged position as I am friends with Vodafone, Asim Ghosh and the Ruias,” said Analjit Singh. “My shareholding will not be affected by this deal. If Essar sells its stake, I will look into it but it is premature to say anything at this stage.” He added that if Asim Ghosh’s stake was on offer, he would probably buy it. But he hastened to add that it was unlikely that Ghosh would sell.

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