The Telegraph
Since 1st March, 1999
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Ruias keep Hutch call on wait

Mumbai, Jan. 4: The Ruias have decided to play a wait-and-watch game — wait for one of the circling predators to stump up their bid for Li Kashing’s 67 per cent stake in Hutchison Essar.

The Ruias are clearly in a very strong position with a 33 per cent stake in the country’s fourth largest telecom company and armed with legal opinion that they will be able to enforce the right of first refusal that is built into the shareholders’ agreement that they have with Hutchison Telecom International (HTIL).

The Ruias will decide whether or not to mount their own bid after one of the interested outfits comes up with an official bid.

Right of refusal

Disputing claims by a section of people that the Essar group has only a limited first right of refusal, sources close to the conglomerate said they have obtained a legal opinion from noted legal eagle Harish Salve that endorses their claim even though Hutchison is trying to raise a legal quibble over the wording of the relevant clause in the shareholder's agreement.

Reports had said the Essar group’s first right of refusal would come into play only if Hutchison sells more than 27 per cent of its 67 per cent shareholding in Hutch Essar. It was also interpreted by few others that the right will only exist if Hutchison were to sell its stake to Reliance Communications (R-Com).

Sources close to the Ruias rubbished the notion. “Their first right of refusal would exist even if Hutchison were to sell less than 27 per cent. The group has obtained a legal opinion which clearly states this. Moreover, there is nothing in the agreement which states that the right will only be applicable to one class of bidders and not to others,” sources said.

Mum’s the word

However, officials from the Essar group declined to comment. “We have no comments to offer on this issue,” an official said. Simultaneously, the Ruias are also involved in the process of tying up necessary funds, should it decide to match the highest bid for Hutchison’s stake. There are others who, however, say the group may also look at selling their shareholding if Hutch-Essar attracts good valuation.

“The group will take a call on the entire situation only if one of the interested players puts in a bid. Till now this has not happened,” sources close to the group added.

Ambani watch

Indications coming from the Anil Ambani group indicate that R-Com is also prepared to play the waiting game. Sources said nothing can move forward until Hutchison and the Ruias resolve all the sticking points that seem to be holding up the bidding process.

Hutchison has reportedly asked for a floor valuation of $14 billion for its 67 per cent stake, thereby giving an enterprise value of over $20 billion for Hutch Essar.

Sumit Modi, a telecom analyst at Emkay Research, said while such a valuation is “very high”, the bidders are unlikely to go beyond $18 billion and any amount beyond this level would be a major negative in the short run.

It is believed that in the event the Ruias decide to stay in HEL, they may buy out the entire HTIL stake or align with Vodafone.

Hinduja move

The Hindujas today announced their interest to acquire Hutch Essar, joining Reliance Communications and Vodafone in the race for the country's fourth-largest mobile operator.

“I have written to Hutchison Telecom asking them if they want to divest their stake in the joint venture. We have shown our interest in acquiring the stake. As a matter of policy we don't seek a stake less than 51 per cent,” Hinduja TMT executive chairman Ashok Hinduja said.

Hinduja TMT had exited Hutch Essar by selling its 5.11 per cent stake for $450 million in June last year.

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