While the SC verdict on 2G licences was a blow to the telecom industry, companies such as Bharti Airtel and Idea Cellular, backed by private equity (PE) players, have benefited.
Bharti and Idea have investments from Temasek Holdings and Providence Equity Partners, respectively. The shares of Idea went up 2.7 per cent to close at Rs 95.85 on the Bombay Stock Exchange. Bharti Airtel went up 6.9 per cent to close at Rs 385.95.
In many ways, the PE rush to India started because of telecom. Warburg Pincus had spotted Bharti in 1999 and six years later, made a billion dollars in profit, making Pulok Prasad and Rajesh Khanna the poster boys of PE. That one investment in many ways made millions sit up and look at PE as an independent asset class for Indian markets.
| SOUTHWARD | ||
| Year | *No. of deals | Value |
| 2007 | 13 | $3.5 bn |
| 2008 | 15 | $1.4 bn |
| 2009 | 7 | $276 mn |
| 2010 | 6 | $483 mn |
| 2011 | 6 | $50 mn |
Subsequently, the sector had witnessed the largest PE investment by a single investor when the Singapore government-owned Temasek Holdings invested about $3 billion in Bharti Airtel in two separate deals in 2007. That year witnessed 13 PE deals, worth $3.5 billion.
In 2008, US-based PE major Providence Equity Partners had bought 16 per cent in Aditya Birla Telecom, a wholly-owned subsidiary of Idea Cellular, in a pre-IPO deal. Later, Providence diluted stake and currently holds 9.8 per cent in Idea. Last year, ChrysCapital sold its entire 2.7 per cent stake in Idea for Rs 751 crore and TA Associates sold its five-year pre-IPO investment in Idea, both exiting completely.
Later doubts
However, the sector is slowly moving out of PE investors’ radar. The uncertainties over regulation made the scam-tainted sector the least considered area for such investments in India.
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Last year, the telecom space witnessed only six deals, worth a mere $50 million, against six deals worth $483 million in 2010.
According to Vikram Utamsingh, head-private equity advisory, KPMG India, the complete uncertainty in the sector keeps PE investors away. He said, “PE investors prefer transparent and crystal-clear regulations in an industry where they look for investments. Also, investors are not keen for purchasing a mere two per cent stake in leading operators through a large deal.”
The year 2008 had witnessed 15 deals worth $1.4 billion, according to data from VCCedge.
All the six deals in 2011 were in value-added services. According to PE investors, this segment is likely to witness more deals. Says Ajay Relan, founder & managing director,
CX Partners and ex-Citi Venture Capital head, “Value added services are attractive investment targets due to the small-ticket sizes.” Last year, CX Partners had invested $30 million in mobile calling card service provider Matrix Cellular (Inter-national) Services Pvt. Ltd.
Outlook
A managing director of a US-based PE major, which keeps away from Indian telecom space, said, “The potential of investments in voice services is almost over in India. Enough growth has taken place in the space and is getting saturated. Apart from the impasse, regulatory hurdles have given another roadblock for investors. We are just waiting for the opportunities in data services space and will start investing at the right time.”
According to bankers, proposed deals in telecom tower space are also unlikely to happen in the near future due to the confusion. According to reports, Reliance Communications is in negotiation with PE majors Blackstone and Carlyle to sell its tower unit in a deal worth $3 billion. “In the current scenario where so many 2G licenses got cancelled, all investors will take a wait and watch call over the new investments,” said an investment banker
A few remain optimistic. Shyam Sundar, senior managing firector at IDFC Private Equity, said, “The only concern is about the regulations. We expect the telecom regulator can bring more clarity in three-four months over new policies, 3G services and roaming, etc. Also, the companies will be in need for capex once the bid for spectrum begins, causing big-ticket PE investments.”