Essar to up stake in Hutch to 38%

Acquisition of 4.4% holding may cost Rs 950 crore.

The Essar group plans to increase its holding in Hutchison Essar Telecom, its joint venture with Hutchison Telecommunications International, to nearly 38 per cent.

The Rs 20,000 crore diversified group has a 30.4 per cent stake in Hutchison Essar Telecom and has signed a deal with Max Telecom to acquire its 3.16 per cent stake in the company. The acquisition of another 4.4 per cent stake may cost the group nearly Rs 950 crore, going by the price it paid to Max Telecom.

According to a Hutchison Essar source, the Essar group had set a target 38 per cent shareholding in the company.

"The promoters, Hutchison Telecommunications and Essar, want to have a combined shareholding of 80 per cent. Now, our foreign partner has a 42 per cent stake, leaving room for us to scale up our holding to 38 per cent," the source added. Other shareholders in the company include the Kotak group (19 per cent stake) and the Hindujas (5 per cent).

The Essar group has been consolidating its position in the telecom space. The process began five months ago when the group agreed to buy Rajiv Chandrasekhar's 64 per cent in BPL Communications. In August, Hutchison said it was exploring ways to acquire two units of BPL Communications with Essar.

The group later acquired TPG Nambiar's 13 per cent stake to scale up its holding to 77 per cent. A fortnight later, the Essar group agreed to sell two BPL firms and Essar Spacetel, and applied for licences in seven telecom circles to Hutchison Essar.

Only a fortnight ago, the group announced it was buying 3.16 per cent from Max Telecom Ventures for Rs 657 crore, pegging the valuation of Hutchison Essar at Rs 21,000 crore.

Industry sources expect that the Essar group might buy out the targeted 4.5 per cent from the Hindujas. However, this could not be ascertained.

Experts felt the consolidation was an indication of an imminent initial public offering (IPO) by the company. "The promoters want to scale up their shareholding before the IPO. It is expected that they will dilute their stake through the IPO, which may offer a combination of fresh shares as well as shares from the existing shareholders," said an analyst working with a local brokerage.

Hutchison Essar is in the midst of restructuring its brands. The company plans to phase out its Orange brand in this financial year and consolidate all its operations, including that of the acquired BPL Communications and BPL Mobile, under the Hutch umbrella.

Sources close to the development said the consolidation of brands would help provide a "more effective and customer-centric approach" and offer uniform rates and services across all its 13 circles in the country.

SCALING UP

Essar already has a 30.4% stake in Hutchison Essar

The group has announced the buyout of 3.16% from Max Telecom Ventures

Other shareholders in the company include the Kotak group (19 %) and the Hindujas (5%)

Essar may buy the targeted 5% from the Hindujas