During the last few months, the BPL Mobile Group has been in the news often. The latest reason is the group’s ambitious two-stage telecom plan to first buy out the 37.43 per cent equity block collectively held by foreign shareholders ?? Actis, AIG, Nomura-TVG and ADB ?? in BPL Communications and subsequently offer the block of stake, or more, to a strategic partner.
In itself, the plan has merit. The BPL Mobile Group, which owns 100 per cent of BPL Cellular and 74 per cent of BPL Mobile through holding company BPL Communications, has been a sought-after acquisition target by both domestic service providers and international telecom carriers aiming for a bigger foothold. This is not surprising given that the two cellular companies are key players in important circles like Mumbai (BPL Mobile) and Tamil Nadu, Maharashtra and Kerala (BPL Cellular). The companies also have a substantial subscriber base.
For the BPL Group too, the plan makes sense. Battling a debt of $600 million (Rs 26.40 billion), the company would do well to opt for a strategic partner, who could bring in resources to fund the group’s expansion plans in the face of stiff competition.
So far so good, but implementing the two-stage plan is not proving to be easy. The group is entangled in several internal litigations on ownership issues between the patriarch T.P.G. Nambiar and his sonin-law Rajeev Chandrasekhar, chairman of the BPL Mobile Group. There are also other assorted litigations between the foreign partners and the Indian promoters. In light of this, sector observers feel the plan could take a year or more to come through, depending on how the group manages to handle the proceedings and who is the likely strategic partner.
Although company officials say that talks between the BPL Mobile Group and its foreign stakeholders have gained momentum, analysts are of the opinion that a deal is not imminent and that it will take several months for the issue to get resolved.
At present, the BPL Mobile Group holds 62.57 per cent in BPL Communications, while the balance 37.43 per cent is held by foreign private equity investors ?? AIG (16.46 per cent), Actis (6.87 per cent), ADB (4.2 per cent) and NomuraTVG (9.9 per cent).
What the company is hoping for is an out-of-court settlement with its foreign equity partners in the ongoing arbitration proceedings in London. The international arbitration proceedings against BPL Communications are being spearheaded by the AIG-controlled Emerging Markets Partnership (EMP) and Actis (formerly CDC Advisors). The BPL Mobile Group is reportedly weighing the option of directly buying out the 37.4 per cent held by its foreign shareholders in BPL Communications once the London arbitration proceedings are settled.
However, the question that arises here is, how will the group, saddled with huge debt, raise the required finances to buy out the stake? The foreign partners have invested close to Rs 9 billion in BPL Communications. Even if the group negotiates for a packaged valuation of the combined equity of the two operating companies, the process will take some time.
Meanwhile, the BPL Mobile Group’s plan to acquire a strategic partner has also run into trouble with Nambiar and Chandrasekhar fighting bitterly over the ownership issue and Nambiar contesting any sale of stake.
This issue seems to have received a respite as the Company Law Board (CLB) has dismissed Nambiar’s plea for restraining the sale of shares in the three telecom companies. The CLB’s additional principal bench, Chennai, has, however, asked all three firms to file status reports within seven days of any shareholding changes. It has also specifically asked Chandrasekhar to give a week’s notice to Nambiar in case of any transfer of shares in these companies.
As far as BPL’s imminent strategic partner is concerned, several companies are being considered and are rumoured to be close to clinching a deal. Among the frontrunners are Essar, Singapore Technologies Telemedia (STT), Russian telecom major Sistema, and European telecom major Vodafone.
Of these, Essar seems to be a strong contender, and is reportedly negotiating with all the Indian and foreign partners on a one-on-one basis. Essar already holds 9.9 per cent in BPL Mobile. However, analysts point out that if Essar does finally clinch the deal and increase its stake in the group, it will come into conflict with government regulations. Existing DoT licensing conditions do not allow a single company to hold more than 10 per cent stake directly or through its associates in more than one licensee company in the same service area. (In fact, DoT recently cited this condition while objecting to STtMalaysia International’s plans to acquire a 47.7 per cent stake in Idea Cellular for $390 million.) Essar currently holds 9.9 per cent in BPL Mobile and nearly 20 per cent in Hutchison Max Telecom, both of which offer cellular service in Mumbai.
In the interim, it is business as usual for BPL. Its telecom business notched Rs 10.12 billion in revenues for 2004-05 and 2.16 million subscribers. For the current year, the group proposes to invest Rs 7 billion on expanding its network coverage and enhancing capacity.
