Vodafone, pvt equity investors lead race

Vodafone and a consortium of private equity funds led by the Texas Pacific Group (TPG) have forged ahead in talks for acquiring Hutchison Telecom International Ltd’s (HTIL’s) 67% stake in India’s fourth largest mobile operator, Hutchison Essar, sources close to HTIL said on Sunday. This suggests that Anil Ambani’s Reliance Communications (RCom), once thought of as a frontrunner, has fallen a bit behind in the race.

“Initial talks with Vodafone and equity funds led by TPG have advanced, while the discussions with others are still preliminary in nature,” a source familiar with the development told PTI, discarding reports that bids had been made for HTIL’s stake in Hutchison Essar.

Even as the Indian media was abuzz with reports and speculation that HTIL has received five bids — from RCom, Vodafone, Malaysia’s Maxis, Egypt’s Orascom and the Ruias of Essar, who hold 33% in the venture - investment banking sources said: “Everything is just at a preliminary stage”.

While Vodafone can go ahead with its discussions on HTIL after having made its position public, sources pointed out that Anil Ambani’s Reliance Communications would have to await a decision by the Ruias on whether or not Essar would exit the venture. In case Essar decided to stay put, then RCom may not be able to go ahead with the venture due to regulatory norms in India, they indicated.

HTIL, owned by Kongkong magnate Li Ka-shing, has mandated Goldman Sachs for the sale of its stake in the India venture, whose enterprise value is being estimated up to $17-18 billion. Sources said that TPG, which reportedly has a tieup with Maxis, too, is also mulling the option of joining other equity funds for the bid, including US’s Blackstone and Kohlberg Kravis Roberts.

Earlier, some of these funds were reported to have joined a consortium led by Reliance Communications, but there is no official confirmation.

Asked for the reasons for the funds exploring the option of going on their own, sources said that purely as equity investors these funds are unhappy about the hype and hoopla being created on HTIL’s stake, as it was pushing up the valuation.

It may be recalled that five equity funds had come together last year to acquire a controlling 88% stake in Danish Telecom firm TDC for $15.6 billion.

Meanwhile, another investment banking source said that UBS, mandated by Vodafone as advisor for the Hutchison Essar deal, could no longer be involved in arranging funds for the Reliance consortium.

A PTI report from Hongkong quotes an HTIL spokesperson as saying that the company had been “approached by various parties and discussions are on.”

Referring to the first right of refusal that the two partners in Hutchison Essar have, sources pointed out that whatever may be the top offer, HTIL would have to first inform Essar. The Ruias of Essar will then get an opportunity to match the bid or forgo the right. There was, thus, no need for them to make a bid, sources said, adding that Essar is yet to take a call on whether to stay put or sell off their equity in the venture.

Meanwhile, British newspaper Financial Times reported that RCom was in talks with at least four equity funds - Apax Partners, Blackstone, Carlyle and KKR - for combining forces to make an offer for Hutchison Essar.