Sale of mobile assets to Vodafone will help cut Hutchison's 3G debt in Europe
Hutchison Telecommunications International Ltd, which is to sell its Indian mobile-telephone interests to Britain's Vodafone Group, will book a pre-tax gain of HK$75 billion from the sale, the company said last night.
Hutchison Telecom earlier said it had agreed to sell its 67 per cent stake in Hutchison Essar for a cash consideration of HK$86.5 billion, a deal that would help offset part of the HK$100 billion net debt in Hutchison's European 3G mobile business.
No decision had been made on the use of proceeds from the deal, said the company, controlled by Hutchison Whampoa.
The company would consider using portions of the proceeds to cut debt, make distributions to shareholders by way of a special dividend and fund new investments, it said.
Market watchers said Hutchison Telecom might retain the profit for acquisitions of European 3G business from Hutchison Whampoa or privatise the company.
'Management of Hutchison Telecom will share with the public how the proceeds will be used after the Lunar New Year holiday,' a spokesperson said last night.
Hutchison Telecom chairman Canning Fok Kin-ning welcomed the deal as 'a landmark transaction for India, the company and its shareholders'.
'The transaction price represents a sizable premium on the company's investment and unlocks substantial value for our shareholders,' Mr Fok said.
Hutchison Telecom, in which Hutchison Whampoa holds 49.8 per cent and Egyptian firm Orascom Telecom holds 19.3 per cent, will retain its smaller telecommunications businesses in Hong Kong, Israel, Thailand, Vietnam, Indonesia, Ghana and Sri Lanka after exiting the Indian market.
The total users of Hutchison Telecom will fall to about 6.6 million from 26 million when the Indian operations were included.
Shares of Hutchison Telecom, which have gained 55 per cent in the past 12 months on rumours of a sale of the Indian business, will resume trading today after being suspended yesterday pending the announcement. They closed at HK$19.20 on Friday.
The deal valued Hutchison Essar, India's fourth-largest mobile operator, at HK$146.8 billion including debt, compared with the net asset value at the end of 2005 of HK$1.79 billion, the company said in the announcement.
A source close to the deal said the transaction was priced at 30 times earnings before interest, tax, depreciation and amortisation and at a 30 per cent premium to the valuation of Hutchison Essar's rival, Bharti Airtel.
For the six months to June last year, Hutchison Essar generated HK$1.7 billion in operating profit on revenue of HK$7.08 billion, accounting for 76 per cent of Hutchison Telecom's group operating profit and 45 per cent of revenue.
Credit rating firm Moody's yesterday affirmed the A3 rating of Hutchison Whampoa. The rating outlook remains stable.
'[The sale] could eventually help to reduce Hutchison Whampoa's consolidated net debt, which stood at HK$135 billion as of June 2006,' Moody's said in a statement.
'It is a very good price,' Morgan Stanley analyst Rob Hart said. 'The upside on Hutchison Telecom has been captured.'
Nevertheless, the deal sparked suspicions Hutchison Whampoa was again selling family silver to cut heavy debts it had run up trying to grow its 3G operations in Europe.
On the backdrop of punishing competition and higher costs to retain customers, Hutchison's 3G operations were expected to incur a loss of HK$15 billion for last year and HK$9 billion this year, according to a Nomura Asian Equity Research estimate last year.
Hutchison Whampoa's bond spreads tightened yesterday on hopes the cash may be used to lower the group's debt and improve its credit profile. The cost of insuring its debt also fell.
Vodafone would also make an offer to Essar Group, the local partner of Hutchison Essar, at the same price for Essar's stake in the next few weeks, Vodafone chief executive Arun Sarin said yesterday. Vodafone said the deal would be financed by debt and cash reserves.
Hutchison Telecom operations
- Hong Kong and Macau mobile
Hutchison Global Communications
- Hong Kong fixed line
- Thailand mobile (Hutchison CAT): 737,000
Hutchison Telecom Lanka
Sri Lanka mobile
- Ghana mobile
- launched this year
- to be launched this year
Hutchison Whampoa 3G operations
Italy 6.81 million
Britain and Ireland 3.75 million
Sweden and Denmark 595,000
Australia 1.15 million
Total 12.68 million