Hutchison, Essar, Orascom – An Insight

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In: Mobile, Telecom

If you are regular reader of this blog, then you are aware of the cold war between Hutchison and Essar in Hutch. Here are some of the recent developments.

  • Essar group obtains permission from the FIPB to increase stake in the venture as a Foreign Investor – Smartest Move. Essar kills two birds at a time – Checks growth of other foreign investors in the venture and is probably taking tax shelter routing investment through Mauritius.
  • Orascom Telecom wanted to raise its stake in Hutchison Telecommunications International Limited – HTIL. However, Essar strongly opposed Orascom’s entry on the grounds of National Security and also blocked further foreign investment in the venture by obtaining FIPB clearances. Not sure what went between HTIL and Orascom, Orascom filed a notice with the Cairo stock exchange about its intention to offload part of its 19.3% stake in HTIL. Orascom had bought the stake at HKD 11 and current price of HTIL is around HKD 16. Orascom intends to maintain stake in HTIL over 12% so that it has control in the agreement reached between itself and HTIL
  • HTIL leaks that it has no intention to list the Indian subsidiary on Indian stock exchanges. Why not ? Under current SEBI regulations, 60% of the IPO is reserved for Institutional Investors. Since only Essar can subscribe as a foreign investor, it will help them increase stake in the venture which Essar group wants to do at any cost. [I am not positive about FII investment through IPO would fall under the 74% ceiling of FDI in telecom, but I am reasonably confident it will because I have read FIIs are not allowed to subscribe to IPOs of Retail ventures where they are completely banned]

Asim Ghosh, CEO, Hutchison Essar is a veteran of Hutchison Whampoa. He entered the Hutchison group in Hong Kong through Pepsi joint venture in 1991 and this gives him a 15 year strong relationship with the group. Hutch is involoved in a number of shady deals in the past – kicking out Hindujas and Kotak out of the venture and bringing back Analjit Singh. Hutch Int also lent $324 Million to Singh and Ghosh for 12% in Hutch Essar. Hopefully the partners will wake up before its too late.

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