The Hindu Business Line : Can Ruias squeeze a better deal later?

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Mumbai Feb. 15 Analysts are debating whether the Vodafone-Hutch deal yields the best price ever that the Ruias of Essar can get for their interest in Hutchison-Essar, or whether they can squeeze out a better price later by remaining as Vodafone's partner.

If they sell their 33 per cent stake in Hutchison Essar at this point, the Ruias stand to get the control premium that Vodafone is paying Hutch for a majority stake of 67 per cent. They may hope to get a bulk sale premium later, but not a control stake premium, noted an analyst.

"But if the Ruias are betting on India's big telecom growth then they probably expect that valuations will rise and exceed the current control premium some time down the line," said an telecom sector analyst.

Whether valuations will indeed rise is a risk that they will take, he said, and added, "They must decide whether they want to be a strategic partner or a financial partner."

Also, since Vodafone has deep pockets and has said it will invest $2 billion in the company, an initial public offer as an exit option for the Ruias does not seem likely in the near future, he said.

The amount of cash (around Rs 26,000 crore) that the Ruias are currently on the threshold of is very, very large; and if they don't have a plan of investment, then it is perhaps better to stay invested, said another analyst.

Also, one can never tell how valuations may move up, he said. "At the time of Vodafone's investment in Bharti the price seemed ridiculous, we goggled, but that investment appreciated," he said.

"Another advantage that the Essars have is that 20 per cent stake of their holding in HEL is in the form of foreign direct investment. So if Vodafone wants to increase its stake in HEL at any point down the line, it will have to turn to the Essar group, since the other Indian partners will have to remain, in keeping with the FDI norms for the Indian telecom sector," he said.

Advantage

This advantage would hold in respect of any other international investor interested in a stake in HEL, said the analyst.

There could be other advantages as well. When the Essar group has a holding company overseas with such large assets in India, it can raise money against it overseas for any requirement it may have from time to time, somewhat in the manner that Vedanta has, he added.

Finally everything depends on the seller's keenness to sell and the buyer's keenness to buy, said the analyst. "There is no such thing as the right valuation."

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