Buy-out groups eye Hutchison stake

Private equity companies led by Blackstone Group and Texas Pacific Group are expected soon to begin takeover talks for the Indian mobile phone operations of Hutchison Telecommunications International Limited.

Any sale of HTIL’s 67 per cent stake in Hutchison Essar, which has an enterprise value of $10bn to $13bn, would be Asia’s largest private equity deal.

A sale would give the private equity groups access to India’s booming telecoms market and help HTIL, controlled by Hong Kong tycoon Li Ka-shing, raise cash for its struggling third generation telecoms operations.

But a deal could face hurdles from the Hong Kong company’s local partner, Essar Teleholdings, which claims pre-emption rights over any sale by HTIL of its stake in their joint venture.

India has overtaken China as the world’s fastest growing mobile phone market. In October, 6.7m new subscribers brought the country’s total to 136m, compared with China’s 5.9m additions and 449m total customers.

The interest in Hutchison Essar, the third-largest operator in the market with 23.3m subscribers, comes as private equity firms have been raising more funds to target Asia’s high-growth markets.

HTIL declined to comment on Thursday while Essar Teleholdings said it had not been approached by the private equity firms.

People close to the situation said talks between HTIL and Blackstone and Texas Pacific were at a preliminary stage but “detailed talks will take place soon”.

One said HTIL wanted the money to help revive its struggling third generation telecoms division, 3: “Li Ka-shing is a dealmaker and he needs the money to help turn round 3.”

It is understood that Essar would insist on pre-emption rights on any substantial sale by HTIL of its holdings in the joint venture. Essar would then have the right to match or better any offer from the private equity group.

A person familiar with Essar said the group until now had been keen to increase its stake in the joint venture rather than sell. “Clearly Essar’s past conduct and intention has been to increase its stake,”
he said.

Another person familiar with the joint venture said HTIL had contemplated many times in the past few years listing its Indian operations to raise money but had been deterred by regulatory hurdles.

“Hutchison is keen to realise value of the operation,” he said. “Hutchison is a value player. They are not desperate to sell but
they will do it at the right rice.”

Reporting by Joe Leahy in Mumbai, Justine Lau and Tom Mitchell in Hong Kong and Sundeep Tucker in Seoul