Russian firm eyes 49% in Aircel for $450 mn

AFK Sistema will set up a subsidiary in India to acquire the stake.

Russian conglomerate AFK Sistema has signed an agreement to buy 49 per cent of the C Sivasankaran-promoted Aircel Televentures for $450 million. Aircel provides cellular services in the Chennai and Tamil Nadu circles.

Sistema, which is currently holding a roadshow for Russia's biggest initial public offer, will have the option to increase the stake to 51 per cent. According to the deal, the Russian company will set up a subsidiary in India to acquire the stake.

The deal is bigger than Essar Hutchison's June 2004 offer to buy 49 per cent in Aircel for $362 million. That arrangement, however, did not materialise because the department of telecommunications did not approve it.

In December 2004, Aircel had a subscriber base of 1.64 million of which Tamil Nadu contributed 1.15 million and Chennai 492,504 subscribers. The acquisition cost per subscriber for AFK Sistema is estimated at $273. For Hutch, it had worked out to $400 on a subscriber base of 850,000.

"We have got an offer from the Russian company and we have said yes. But no final deal has been signed," Sivasankaran said.

Aircel executives, however, said the company was open to negotiations with other buyers if they offered a higher price.

Aircel Group Director V Srinivasan said the agreement was subject to approvals by both Russian and Indian authorities.

Aircel Televentures is the holding company of Aircel Ltd and Aircel Cellular Ltd, which have licences to provide mobile services in 12 of India's 23 telecom circles.

The Sivasankaran-promoted companies are entering seven new circles, including West Bengal, Orissa, Assam, Bihar, Himachal Pradesh, Jammu and Kashmir, and the Northeast. Sivasankaran has lined up investments totalling Rs 2,000 crore in these circles.

Earlier, the Bharti group was also in the race for Aircel and is believed to have offered Rs 1,200 crore for a 49 per cent stake.

Sistema, founded in 1993, is Russia's largest consumer services company and has interests in telecom, insurance, banking, technology, real estate, retail and media. It operates three companies in telecom alone.

According to the Sistema website, the Russian company reported revenues of $3.8 billion in 2003 and $4.1 billion in the first nine months of 2004. It had assets worth $7.6 billion at the end of September 2004.

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Bear hug

Eligible suitor

Sistema is Russia's largest consumer services company. It had revenues of $4.1 bn in Jan-Sep 2004

Hot pick

Aircel is on an expanding spree and will have a presence in 12 of India's 23 circles

In December 2004, it had a subscriber base of 1.64 million

The acquisition cost per subscriber for AFK Sistema is $273, much less than the $400 that Hutch was willing to pay last year