Essar calls off BPL Mumbai sale to Hutch

Category: Vodafone | No Comments | Posted on August 2, 2006

The Essar group has called off a proposed merger of BPL’s operations in Mumbai with Hutchison Essar citing non-receipt of government approvals.

The share purchase agreement signed between BPL Mobile and Hutchison Essar was conditional on the parties receiving DoT approvals by July 31. Since the approvals were not received until this date, the purchase was not completed and the agreement has been terminated

Essar is a minority partner in Hutchison Essar, holding about 33% in India’s 4th largest operator, which is controlled by Hong Kong’s Hutchison Telecommunications International Ltd.

In July 2005, Essar bought a controlling stake in two mobile services companies operated by BPL group in a deal valued at more than $1 billion.

It sold BPL Mobile Communications, which operates GSM services in Mumbai, and BPL Mobile Cellular, which operates GSM services in Maharashtra, Goa, Tamil Nadu, Pondicherry and Kerala, to Hutchison Essar for $1.154 billion.

The government approved the deal for BPL Mobile Cellular, but did not give the go-ahead for the merger of the Mumbai operations by July 31, the mutual deadline agreed by both parties.

Hutchison Essar needed separate approval for the BPL Mobile Communications deal as it also offers mobile services in Mumbai and current regulations are hazy on mergers between companies offering services in the same area.

DoT officials maintain that the delay has occurred as it was still verifying facts about the actual ownership of BPL’s mobile business. While BPL Communications is believed to have complied, the government was studying the details.

Hutch is the largest player in Mumbai with over 2.1 million users, while Reliance comes second with 1.8 million subscribers, followed by Bharti with 1.4 million and BPL with 1.3 million users.

Stung by the termination issued by its joint-venture partner, Hutch has moved Bombay High Court against the notice.

When contacted, an Essar official told media that as per the agreement if the approval did not come by the due date (July 31), either party could terminate the agreement. We have done exactly that as the approval from the Government did not come by that date, he said.

Hutch officials did not disclose the plea under which they had moved court against the notice, saying the matter is now subjudice.

Differences had been brewing between the two JV partners for a long time.

While Essar wanted a greater say in the company’s matters, Hutchison was taking actions without adequately consulting the group. Unhappy with the equity sale by Hutchison Telecom International to Egypt’s Orascom, Essar had also written letters to the Prime Minister’s Office (PMO), DoT and the defence ministry, raising security concerns.

According to reports, Essar has already started looking for partners to sell BPL’s Mumbai circle. It has appointed Standard Chartered Bank as an advisor to find buyers. Several leading telecom companies are believed to have shown interest.

Idea is keen to enter Mumbai and has applied for a licence for the circle… Reliance Communications is also eager to roll out GSM services in Delhi and Mumbai.

BPL’s growth and subscriber base in Mumbai is suffering due to the prevailing uncertainity. Over 10,300 subscribers have opted out of BPL in the past two months.

Hutchison Essar had earlier entered a purchase agreement with Aircel, also conditional on the receipt of government approvals under the intra circle merger guidelines. That deal was called off as approvals were not received. Aircel was later bought by Malaysia’s Maxis.

Sources: Financial Express and ET