Hutch may find going in tough shareholder meet today

Hutchison Telecommunications International may struggle to convince shareholders that investing in Vietnam and Indonesia will compensate for the loss of its Indian mobile-phone unit, the company's biggest earner.

The Hong Kong-based company's shares have fallen 18 per cent since February 12 when it agreed to sell its stake in Hutchison Essar to Vodafone Group Plc for $11.1 billion.

Hutchison Telecom will seek shareholders' approval for the deal at a meeting in Hong Kong tomorrow.

Hutchison Telecom, controlled by billionaire Li Ka-shing, is exiting a market in which about one in seven people own a mobile phone in favor of Southeast Asian countries, where the penetration rate is nearly twice as high. Stockholders are set to approve the stake sale after parent Hutchison Whampoa backed the deal.

"It will be difficult for the company to find another market that grows as fast as India,'' said Yukie Suzuki, a Geneva-based analyst at Pictet & Cie Banquiers, which owns Hutchison Telecom stock. Some markets in Asia are growing quickly "but there is no guarantee of profitability for operators,'' she said.

India, the world's fastest-growing mobile-phone market, added 6.81 million subscribers in January for a total of 156.31 million, as it continues to outstrip China, which gained 6.33 million users in the month. China is the world's biggest wireless-phone market by customers, with a total of 467 million.

Subsidise losses: Hutchison Telecom shareholders such as Pictet & Cie will receive a special dividend of HK$6.75 per share on completion of the sale of the company's 67 per cent stake. Hutchison Whampoa will get HK$16 billion ($2 billion). The deal is also pending approval by India's telecommunications regulators.

Operating profit at Hutchison Essar grew 41 per cent to HK$2.6 billion in the first nine months last year, allowing parent Hutchison Telecom to subsidise start-up losses in markets such as Vietnam and Indonesia, and still post its first profit since it listed in October 2004.

Hutchison Essar contributed 45 per cent of Hutchison Telecom's revenue of HK$24.1 billion in the first nine months last year, and made up 77 per cent of its total subscribers. The Indian unit, which started operations in 1994, had 23.3 million as of December 31, double the number it had a year earlier.

Hutchison Telecom said it will set aside $5 billion of the sale proceeds to seek investments in new markets, as well as increase spending at existing operations. The company's units in Vietnam and Indonesia will receive at least $1.1 billion combined in investments in the next two years, Chief Financial Officer Tim Pennington said on February 22.

Seek investments: HT Mobile, its Vietnam unit, said it started services on January 15. PT Hutchison CP Telecommunications, an Indonesian mobile operator in which Hutchison Telecom owns 60 per cent, will start service at the end of this month, Pennington said.

Hutchison Telecom also has mobile-phone businesses in Hong Kong, Israel, Thailand, Sri Lanka, Macau and Ghana.

Wireless subscribers in Vietnam more than doubled last year to 18.9 million, from 9 million a year earlier, according to the country's Ministry of Post and Telecommunications.

About 23 per cent of the country's 83 million people have cell phones. Indonesia, which had about 70 million mobile-phone users at the end of last year, is targeting 100 million users by 2009, Sofyan Djalil, the country's communications minister, said in an interview on February 6. Fewer than 30 per cent of the country's 242 million people have mobile phones.

Unprofitable unit: Hutchison CAT Wireless Multimedia Ltd, Hutchison Telecom's mobile-phone venture in Thailand with government-owned CAT Telecom Pcl, has failed to return an annual profit since it was set up in 2001. In 2005, Hutchison Telecom sold its unprofitable mobile-phone unit in Paraguay.

"While it's possible Hutchison Telecom could find the next Hutchison Essar and create value, it's also possible they could find the next Hutchison CAT and destroy value,'' Credit Suisse analyst Colin McCallum wrote in a report on February 26.

Hutchison Telecom will set aside $1.1 billion from proceeds of the Hutchison Essar sale to repay debt in Thailand, Pennington said. The Thailand business had an operating loss of HK$382 million in the first nine months last year, compared with HK$496 million a year earlier.

In Indonesia, Hutchison Telecom will face competition from operators including PT Telekomunikasi Indonesia, the nation's biggest publicly traded company, and PT Mobile-8 Telecom, partly owned by US telecommunications equipment company Qualcomm Inc.

In Vietnam, Hutchison Telecom will be up against companies including Vinaphone Co and Vietnam Mobile System Co, units of state-owned Vietnam Post and Telecommunications Group.

Sell businesses: Instead of increasing investments, Hutchison Telecom maylook to sell businesses.

"Breaking up the remaining assets in Hutchison Telecom is the best way to maximize their value,'' HSBC Holdings Plc's head of regional telecoms research, Tucker Grinnan, said.

Naguib Sawaris, chief executive officer of Orascom Telecom Holdings SAE, Hutchison Telecom's second-largest shareholder, stepped down as a director of the Hong Kong company on March 5, in a move that may make it easier for assets to be traded between the two companies, Grinnan said.

Orascom may be interested in buying Hutchison Telecom's businesses in Sri Lanka, Vietnam and Indonesia, Grinnan said.