LONDON/MUMBAI, England/India — Hutchison Whampoa has received bid interest in its Indian mobile phone business but the prices indicated so far are too low, a source close to the matter said on Thursday.
The Financial Times newspaper said, without naming sources, that British mobile phone group Vodafone was considering a $13.5 billion-plus offer for Hutchison Essar, India’s fourth-biggest mobile phone business.
“There have been some expressions of interest,” the source told Reuters. The source declined to name the suitors but said Hutchison was unlikely to agree to a bid pitched at about $13.5 billion.
Reliance Communications, India’s number two mobile phone group, is also looking at a possible bid in tandem with private equity group Blackstone, another source familiar with the situation told Reuters.
All of the companies declined to comment.
Hutchison Essar is 67 percent-owned by Hong Kong tycoon Li Ka-shing’s Hutchison Telecommunications International. India’s Essar group, which holds the remainder, has first right of refusal if Hutchison decides to exit.
Vodafone underlined its ambitions to expand in emerging markets at an investor day earlier this month, as it looks to offset slowing growth in its western European heartlands, and analysts have long expected it to step up its presence in India, the world’s fastest growing mobile phone market.
Vodafone has a 10 percent stake in India’s number one player Bharti Airtel Ltd. but Bharti Chairman Sunil Bharti-Mittal told Reuters in October the group was not keen to sell a further chunk of the business to Vodafone.
“The pressure for Vodafone to do a deal in the next quarter is high, which raises the risk of potential overpayment,” Bear Stearns analyst Fanos Hira wrote in a research note. He believes Vodafone’s organic earnings growth will peak this financial year.
At 1045 GMT, Vodafone shares were down 1.5 percent at 143-1/2 pence, the biggest fall on the UK’s benchmark FTSE-100 index. Reliance shares were up 3.2 percent at 461.7 rupees, but analysts also expressed concern it might overpay in a bid battle for Hutchison Essar.
“Reliance Communication carries the risk of paying (a) significant valuation premium,” brokerage CLSA said.
At $14 billion, analysts estimate Hutchison Essar’s enterprise value at 20.6 times EBITDA in the year to March 2007, well above Bharti’s 16.2 times.
“Conceptually we like the increasing focus by Vodafone into buying growth assets … but this must not come at any price and we fear the prices in India look like they are in a bubble at the moment,” said WestLB analyst Morten Singleton.
India’s GSM carriers reported a record 5 million new subscribers in November, including more than 1 million for Hutchison, taking total users in the country beyond 143 million.
Hutchison has a market share in India of about 16 percent, behind Bharti’s 21.5 percent, Reliance’s 20.4 percent and state-run Bharat Sanchar Nigam’s 16.5 percent.
Macquarie Securities estimated Hutchison Essar’s enterprise value at $13.7 billion, with an equity value of $12.2 billion.
Indian newspapers also said Malaysia’s Maxis Communications — which last year bought 74 percent in India’s Aircel — and Egypt’s Orascom Telecom were potential suitors.
Hutchison is attracting interest due to its high revenue per user. CLSA estimates its average revenue per user (ARPU) at 420 rupees ($9.4) a month, against an average 366 rupees for all providers. In comparison, Reliance has an ARPU of 354 rupees, while Bharti leads with 438 rupees, it said.