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Private equity interest in the takeover battle for Hutchison Essar has waned following the rapid escalation in the valuation of India’s fourth-largest mobile phone operator, with buy-out firms increasingly unlikely to join any bid.

According to people familiar with the situation, private equity groups involved in the keenly-contested bid have signalled that they would not participate in any buy-out which valued Hutchison Essar much above $15bn.

A small stake in Hutchison Essar was sold last year that valued the venture at $10bn while analysts last month estimated the company’s enterprise value had risen to $14bn.

However, Vodafone of the UK has flagged a potential offer of at least $17bn, sparking concerns among its shareholders that the company could end up overpaying.

Among the private equity groups in talks to join a Reliance-led bid for Hutchison Essar are Blackstone, Kohlberg Kravis Roberts, Carlyle and Texas Pacific Group. All the groups declined to comment.

One person with knowledge of the situation said: “Private equity groups will not play this game at $18bn. That price is crazy, a joke.”

A team of Vodafone executives are in Mumbai doing due diligence on the operational side of Hutchison Essar’s business.

Meanwhile, Arun Sarin, Vodafone chief executive, is due to arrive in India on Wednesday for meetings with government officials.

Hutchison Essar is a joint venture between Hong Kong’s Hutchison Whampoa, which owns a 67 per cent stake, and India’s Essar group which owns the remainder.

Hutchison Whampoa’s decision to cash in its stake has attracted the interest of the Hinduja Group, Vodafone, Essar and Reliance Communications, India’s second largest mobile operator.

Hinduja and other suitors are waiting their turn to evaluate Hutchison Essar.

“We are in the process of going into due diligence on Hutch Essar,” said AK Das, vice-chairman of Hinduja.

As suitors jostle for Hutchison Essar, EU trade commissioner Peter Mandelson telephoned Kamal Nath, India’s commerce minister, on Sunday “to request that competition in the Indian telecom sector be open and fair and uninfluenced by local political considerations”, according to his spokesman.

In a move seen by European Commission officials as a virtual mirror image of Mr Nath’s interventions on behalf of steel magnate Lakshmi Mittal in the battle for Arcelor, Mr Mandelson asked that assessment of bids for Hutchison Essar be made on commercial grounds.

Reliance is aware of their discomfort with the rising valuation of Hutchison Essar. It is now working on possible structures that would provide buy-out firms with guaranteed returns, said people familiar with the situation.

One person said: “Private equity groups are not yet out of this deal but the price will have to drop if they are to play a part.”

Reporting by Sundeep Tucker in Hong Kong, Amy Yee and Jo Johnson in New Delhi, Joe Leahy in Mumbai, and Andrew Parker in London

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