India's Essar considering options after Vodafone deal

Feb 12, 2007, 9:11 GMT

New Delhi - British telecom giant Vodafone had offered to partner India's Essar Group in the country's fourth-largest cellular services' provider Hutchison Essar and the company was evaluating its options, a spokesman said Monday.

Vodafone announced late on Sunday that it had acquired Hong Kong-based Hutchison Telecom's majority stake of 67 per cent in Hutchison Essar for 18.8 billion dollars.

It also said it had offered to buy out Essar's 33 per cent stake in Hutchison-Essar at the same share price it had offered Hutchison Telecom.

But a spokesman for Essar said: 'We have been offered by Vodafone to be their partner. We are at the moment evaluating all our options in the best interests of the group.' He said a decision would be taken in a week or two within a given time frame.

Sources said Essar was seriously considering offloading its stake given lack of growth prospects with Hutchison Essar after the Vodafone takeover.

'Vodafone's offer values Hutchison Essar at around 19 billion dollars. This is a good price,' a statement issued by Essar said.

Under India regulations for foreign direct investment, foreign companies cannot hold more than 74 per cent sake in Indian telecom entities.

'Vodafone's arrangement with minority partners will result in a shareholder structure post-acquisition that meets the requirements of India's foreign ownership rules,' Vodafone's India-born chief executive officer Arun Sarin was quoted as saying in London by PTI news agency.

Vodafone's buyout marks the biggest single investment by a foreign firm in India which, according to Vodafone, is the world's fastest-growing mobile telephony market with 6.5 million new subscribers each month.

Hutchison Essar has a current subscriber base of 24.4 million and is believed to be adding about a million fresh subscribers per month. Its market share is a little over 16 per cent.

Vodafone's acquisition of Hutchison Essar would make India its third-largest market after Germany and the United States, the Economic Times newspaper reported.

Its India operations were likely to offer the fastest growth prospects as 80 per cent of prospective users were already covered by cell services' providers in Germany and 76 per cent in the US. India's current coverage is only 15 per cent.

Vodafone also announced late Sunday that it would be selling 5.6 per cent equity in Bharti Airtel, India's largest cellular services' provider, back to the company in keeping with a no competition agreement.

A spokesman for Bharti said the company would be acquiring the shares for 1.6 billion dollars on a deferred-payment basis.

Vodafone would continue to hold a 4.4 per cent stake in Bharti Airtel as financial investor and will not have any representation on Airtel's board or any management rights, he said.

India's Reliance Communications, the Hinduja Group which teamed with Qatar Telecom and Russia's Altimo and Essar, were among the bidders for Hutchison Telecom's stake.

'Vodafone's participation is a further endorsement of the exciting future growth potential and the progressive policies ... in the Indian telecom sector,' Reliance Communications chairman Anil Ambani said in a statement.

Bharti's Sunil Mittal described the Vodafone bid as 'a strong endorsement of the government policy to promote the Indian telecom sector.'