Merger to boost Hutchison unit's share of India market

PUBLISHED : Friday, 22 July, 2005, 12:00am
UPDATED : Friday, 22 July, 2005, 12:00am

Hutchison Telecommunications International's Ltd (HTIL) Indian mobile-phone unit will merge with rival BPL Communications to create the country's third-largest operator, according to sources close to the companies.

News of the development came a day after India's Essar Group, which holds 30.4 per cent of Hutchison Max Telecom, agreed to acquire 67 per cent of BPL for US$1 billion, pending regulatory approval.

The merger is designed to shore up Hutchison Max Telecom's market position as it prepares for a listing on the Mumbai stock exchange next year. Currently the country's fourth largest carrier with 8.44 million subscribers, the merger with BPL will propel its customer base through the 11 million mark.

'We have never been shy about our intention to expand in India,' an HTIL source said yesterday, adding that the company had been 'in all sorts of discussions with Essar Group'.

BPL operates in four markets: Mumbai; Maharashtra and Goa; Tamil Nadu and Kerala. Hutchison Max Telecom, meanwhile, has a presence in 13 markets through subsidiary Hutchison Essar and four other mobile companies.

Because the two companies overlap in just the Mumbai market, the combined entity would extend its presence to 16 of the 23 mobile markets created by government.

Analysts expected Essar eventually to buy the remaining 33 per cent of BPL.

In a research report, Goldman Sachs analyst Jason Billings wrote: 'We believe that HTIL and Essar are close and that the telecoms moves by Essar are done with the motive of assisting Hutchison [Max Telecom] and not being a competitor.'

India is an important market for HTIL. Hutchison Max Telecom accounted for 72.3 per cent of the company's $1.86 billion operating profit last year.

Analysts said the unit's flotation could raise as much as US$500 million for HTIL. 'If the BPL merger with Hutchison Max Telecom is completed before the IPO, it would definitely raise the unit's valuation,' one analyst said.

ABN Amro expected India's mobile subscribers would reach 75.98 million next year, up from 51.53 million at present. The mobile penetration rate, however, remains low at 5 per cent, though this could climb to 12 per cent by 2008 as declining handset prices and voice tariffs - combined with better coverage - foster take up.