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Trouble brewing in Hutch-Essar JV
Published on Wed, Aug 02, 2006 at 15:47 in Money » Tax section
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New Delhi: There is more trouble brewing in the Hutch-Essar joint venture. The latest rift is over the BPL deal falling due to regulatory nods not coming through.
But industry watchers say that that is an eyewash and Essar was never very keen on the deal going through. Instead it hopes to revive BPL's operations and then put in on the block.
The souring relations between Essar and Hutch has become much bitter with the merger of BPL with Hutch-Essar falling through.
Instead Essar says it is taking over management and plans to reinvest in the BPL brand, which it has rights on till March 2007.
Essar intends to expand infrastructure such as cell sites and ultimately put the BPL Mumbai business back on the block.
An Essar source said: "I don't think running BPL on a long term basis works, as it will compete with Hutch in Mumbai".
The buyers are already lining up. Essar sources say both foreign players like Etisalat, Maxis and Telecom Malaysia as well as domestic players like Idea have expressed interest.
When Rajeev Chandrasekhar sold BPL to Essar, the Mumbai circle was the most profitable with 13 lakh subscribers, though the business has suffered from a lack of focus in the past one year.
It's a curious turn of events. Essar had bought all of Chandrasekhar's telecom operations consisting of the Tamil Nadu, Maharashtra and Goa, Kerala and Mumbai circles in July last year for Rs 6100 crore with the intention of selling them to the Hutch-Essar joint venture for approximately the same amount.
Earlier in January, the three state circles were transferred and Hutch-Essar financed the purchase via a $400 million rights issue.
Essar sources say the transaction included a deposit on the Mumbai circle, the merger of which was pending regulatory approvals.
But the regulatory approvals did not come, not even after Essar and Hutch-Essar extended the internal deal deadline by a month to July 31st. On Monday night, Essar finally terminated the deal with Hutch-Essar and sources say the deposit will be returned.
But here is where the matter could potentially get contentious. Sources at Hutch say the Hutch-Essar joint venture had paid not just a deposit but most of the transaction amount for the Mumbai circle – money that it would obviously want back.
This isn't the first sign of trouble at the Hutch-Essar joint venture. Essar has also objected to Egyptian telecom player ORASCOMM getting an indirect stake in the joint venture.
BPL deal
- Essar bought BPL for Rs 6,100 crore
- BPL ops in Tamil Nadu, Maharashtra and Goa, Kerala, Mumbai
- Essar wanted to sell BPL to Hutch-Essar
Rumour has it that ORASCOMM wants to be a major player in India and it's this rumour that's troubling Essar. It's clear that Essar wants a higher stake in the joint venture, which is why it bid for the Hinduja stake. Hutch outbid it though.
So will the Hutch-Essar joint venture survive these bumps? Sources at Essar say yes, but only if there aren't any changes in ownership and management. But clearly the joint venture is under tremendous pressure and latest fracas over the BPL deal is further proof of that.
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