At first glance, Hutchison Whampoa's sale of a substantial stake in its telecommunications arm to a relatively unknown - in this part of the world at least - Egyptian operator bears all the marks of the conglomerate's recent history of using one-off gains to offset the spiralling cost of rolling out 3G. The sale of 19.3 per cent of Hutchison Telecommunications International Ltd (HTIL) to Orascom Telecom Holding netted the Li Ka-shing flagship $7.4 billion and simultaneously removed $20 billion of HTIL debt from the parent company's balance sheet for this year, thanks to its lower stakeholding of less than 50 per cent. The announcement also came less than a month after the planned listing of Hutchison's Italian mobile unit 3 Italia was delayed until next year. Investors, however, clearly see things differently. Hutchison was the second-most traded stock yesterday, gaining 0.54 per cent to close at $74.60, while Hutchison Telecom was the third-largest gainer, adding 4.6 per cent to finish at $11.40. In fact, there appears good cause for optimism. 'For HTIL, it is a great deal as it provides opportunities in fast-growing markets with low mobile penetration in the Middle East and North Africa,' Macquarie analyst Mark Simpson said. He said the relationship could spawn future joint ventures between the two firms as they chase growth in emerging markets. Orascom operates in seven countries including Algeria, Pakistan, Zimbabwe and Bangladesh. This appears to mesh well with HTIL's expanding reach in emerging markets such as India, Indonesia and Vietnam. A joint statement by the two companies stressed the advantage of the tie-up in terms of 'increased leverage with suppliers' and a 'reduction of costs' of expanding in the two firms' existing markets. 'Hutchison Telecom and Orascom Telecom may find additional ways to combine strengths and we can find ways to work together with [Hutchison] as they develop successful mobile operations elsewhere in the world,' said Orascom chief executive Naguib Sawiris in the statement. CLSA analyst Francis Cheung doubted Hutchison would ever give up control of its operations in potentially lucrative markets such as India and Indonesia but said the deal made sense in terms of aiding future growth. 'HTIL will be facing a lot of capital expenditure in those emerging markets in the next two or three years and Orascom will be able to help with the funding of that,' he said. Mr Cheung also pointed out that removing the debt from the parent company's books aided the perception of the firm as a 'far leaner vehicle' for the next financial results. But a potential wild card in the tie-up could emerge in one of Hutchison's more established hunting grounds - Italy. Orascom's Mr Sawiris is also chairman of Wind Telecomunicazioni, an Italian operator with about 13 million subscribers, after the Egyptian businessman bought a 62.7 per cent stake in the company through his private equity firm Weather Investments. Whether this emerges as a point of conflict with Hutchison's Italian unit remains to be seen but Macquarie's Mr Simpson predicted any future collaboration between the two operators could become the main focus of the market following Tuesday's deal. 'This looks like more of an opportunity than a point of conflict. If it was likely to cause problems that fact would have come out in the negotiations,' he said. Mr Simpson has an 'outperform' rating on Hutchison and a target price of $103.95 for the end of next year, based on the belief that the company's 3G investments will begin to pay off both in terms of revenue and spin-offs of units such as 3 Italia. He also rejected the view of the conglomerate as merely an asset trader, stating instead that the tie-up with Orascom was entirely consistent with the group's recent expansion strategy. 'Hutchison sees the Middle East where Asia was 20 years ago,' he said. 'Through its investment in ports and expanding its retail presence with Watsons in Turkey, and now with telecoms, Hutchison clearly sees the Middle East as an area of growth potential.'
