HTIL to reinvest $5bn from Essar sale

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Hutchison Telecommunications International (HTIL) said on Thursday that it would reinvest more than half of the proceeds from the sale of its Indian mobile phone arm in other developing markets, as its chief executive boasted of having sold to Vodafone of the UK at the top of the cycle.

“Prices for telecoms businesses are expensive at this time and there will be a cooling-off period in the next 12-24 months,” said Dennis Lui yesterday, less than two weeks after his company sold its 67 per cent interest in Hutchison Essar to Vodafone for $11.1bn.

“HTIL will be uniquely positioned to reap the benefits from such a change,” Mr Lui added, singling out the company’s operations in Indonesia and Vietnam as the likeliest candidates for additional investment.

The Hutchison Essar transaction will yield a pre-tax gain of $9.6bn, of which about $4.1bn will be returned to investors through a special dividend of HK$6.75 per share and $5bn reserved for re-investment. HTIL warned that it could not yet provide guidance on the provisions it would have to make for tax purposes.

HTIL is 49.7 per cent owned by Li Ka-shing’s Hutchison Whampoa, the Hong Kong-based conglomerate struggling with mounting losses from its $25bn investment in global 3G networks.

HTIL executives, however, denied being under any pressure from Hutchison Whampoa to help it raise cash. “They are not forcing us to make a distribution,” said Tim Pennington, HTIL chief financial officer.

Speaking publicly for the first time since the bidding war erupted in early December, Hutchison executives also rebutted criticism of the sale from Orascom Telecom – HTIL’s second largest shareholder with a 19.3 per cent stake.

Last week Naguib Sawiris, Orascom chairman, told the FT that the Hutchison Essar sale violated the spirit, though not the letter, of its right of first refusal over any sale of HTIL, adding that the company was stronger with its Indian arm intact.

Hutchison Essar accounted for about 45 and 77 per cent of HTIL’s revenues and profits respectively in the first half of 2006. But Orascom, which controls just two seats on HTIL’s board, did not formally challenge the transaction, acknowledging that it would earn a generous return on its original investment.

“There was a unanimous position on [HTIL’s] board – apparently [Mr Sawiris] was in total agreement with the board’s decision,” said Mr Lui, dismissing the Orascom chairman’s comments as “second thoughts”.

Mr Pennington also described Essar, whose minority holding Vodafone has offered to buy out, as a “good partner”. According to Mr Sawiris, Essar was a “troublesome” and “difficult” partner which Vodafone would be better off without.

The Hutchison Essar sale would leave HTIL with mature networks in Hong Kong, Macao and Israel. Outside Indonesia and Vietnam, its main developing markets include Thailand, Sri Lanka and Ghana.

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