The Hindu Business Line : Hughes Tele.com

SHAREHOLDERS of Hughes Telecom may be better off tendering to the open offer being made by the acquirer — Tata Teleservices and their group companies — for the acquisition of a 20 per cent equity stake at an offer price of Rs 7.11 per share. This open offer follows the acquisition of 50.83 per cent equity stake from the promoter group (Hughes Electronics Corporation, Alltel Corporation and Ispat Industries) of Hughes Tele.com by Tata Teleservices and other Tata group companies.

The purchase consideration for this acquisition is to be discharged by issue of redeemable non-cumulative convertible preference shares convertible by the holders at the end of 51 months from the date of issue at a redemption price of Rs 8 or at the end of 75 months at a price of Rs 10 payable in cash.

But the open offer is being made to the remaining non-promoter shareholders as an all-cash offer. Even if the offer is accepted in full by the non-promoter shareholders (comprising of 33.65 per cent held by FIs, MFs, FIIs and banks and 15.52 per cent held by the public and others prior to the open offer), almost 29.17 per cent of the equity will still remain with this shareholding group, post open offer.

Hughes Tele.com had come out with an IPO through the book building process at an offer price of Rs 12 per share in September 2000. It was awarded the licence to operate basic telecommunication services in Maharashtra telecom circle (including Mumbai) and Goa since September 1997. It is considered to be one of the most attractive basic service circles, with per capita income higher by nearly 50 per cent, compared to India as a whole.

But nearly two years after its IPO, it has managed to record profits only at the operating level of Rs 31.5 crore for the year ended March 31, 2002. Despite managing such an attractive circle, it appears that its high depreciation and finance charges and accumulated losses of nearly Rs 690 crore are likely to prolong the turnaround.

The regulatory bottlenecks may continue to plague Hughes Tele.com. Indications are that the tariff rebalancing exercise for revision of basic tariffs upwards (following the reduction in STD/ISD tariffs) may not happen in the near term. Second, if the Supreme Court allows the introduction of limited mobility services (using the wireless-in-local-loop), it may open up a window of opportunity for Hughes Tele.com, but there is still uncertainty about its impact of competition on tariffs and subscriber base.

Finally, even under the Tata Teleservices management, the possibility of a quick turnaround of Hughes Tele.com operations appears slender. For that matter, the open offer document states that Tata Teleservices may explore the possibility of integrating/synergising Hughes Tele.com's operations with itself through a merger, restructuring or consolidation of the former. In this backdrop, shareholders may consider tendering to the open offer and exiting the stock at these price levels.

The offer opens on August 26 and closes on September 24. The manager to the offer is DSP Merrill Lynch.

Send this article to Friends by E-Mail

Stories in this Section
Watches: Time to tap the potential

Watch out for competition

No titans here

`Imports, no threat for us'

World time slow too

Hughes Tele.com — Accept

Templeton MIP (Growth): Hold/Avoid fresh exposures

A spate of new offers

Canpremium: Book profits

Franklin Balanced Funds: Contrasting approaches