Bharti, Punj Lloyd bid for TCIL’s 30% in Hexacom

Bid Winner May Have To Shell Out Over 1,800 Cr For Stake Buy, Deal To Peg Hexacom's Valuation At Around 6,000 Cr

BHARTI Airtel and Punj Lloyd are the only two companies who have submitted bids to buy out Telecom Consultants of India's (TCIL) 30% stake in Bharti Hexacom, officials aware of the development told ET. Bharti Airtel's operations in six north-eastern states (excluding Assam) and Rajasthan are through Bharti Hexacom. The Sunil Mittal-promoted company owns 70% in Hexacom, and the government had recently invited bids as TCIL wanted to exit by selling its stake JV.
    The deal will be worth upwards of 1,800 crore, which is the base price prescribed by the government-appointed consultant. This values Hexacom, which has a customer base of around 13 million, at about 6,000 crore. Bharti has the right of first refusal to TCIL's stake in Hexacom.
    But, an Empowered Group of Ministers (EGoM) headed by finance minister Pranab Mukherjee, that is looking into all telecomrelated issues, will fix the base price, and the financial bids of the companies will be opened only after this process is completed. Both Airtel and Punj Lloyd did not comment on placing a bid for TCIL's stake in Hexacom.
    Internal telecom department documents reviewed by ET reveal that last month, the Prime Minister's Office had sought clarification on the stake sale after Parliament member Jaiprakash Narayan Singh had raised objections to the sale process. The MP had also demanded that the PMO ask the telecom department if an e-auction (where the bid process is online) can be carried out for the same process. The telecom department has decided to reject the demand for an e-auction on two grounds — Bharti has the first right of refusal since it is a majority stake holder and also since the reserve price is being fixed after the bids have been received.
    Last year, all key ministries had given their approval to a Cabinet note moved by the telecom department on exiting Bharti Hexacom. DoT also accepted the finance ministry's recommendations that a reserve price be fixed for TCIL's stake in Hexacom 'in a fair and transparent manner before going in for the sale which must be conducted through a global auction'.
    Government officials added that the Centre may force Hexacom to list if it fails to get the reserve price through a bidding process. As per DoT records, Hexacom had revenues of 1,346 crore and a profit of 331 crore in 2007-08 and a net worth of 918 crore. According to DoT estimates, these numbers have gone up substantially in 2008-09 and 2009-10. TCIL had earlier tried to exit Hexacom in 2005-06, but decided against it, saying the price offered by Bharti Airtel was too low. Bharti Airtel had offered 262.5 crore for TCIL's stake in Hexacom.
    Last year, DoT decided that TCIL must exit from Bharti Hexacom on account of two factors. First, TCIL had been seeking dividend payouts every year, a request that Bharti group has constantly turned down on account of the 'fact that it (Bharti Airtel) was using all its internal generation for expansion of network to keep up with the intense competition in the market.
    TCIL maintains that it is due to get dividend payment from 2004 onwards when Hexacom began making profits. Second, TCIL had sought the listing of Bharti Hexacom, which too was turned down, on the grounds that the flagship company (Bharti Airtel) is already listed and as such their policy does not permit subsidiaries to be listed. Besides, as per the shareholders agreement, TCIL cannot insist on listing or getting dividend.
DIAL TONE
Bharti Airtel owns 70% in Hexacom & has right of first refusal to Telecom Consultants of India's stake in co
Bharti Airtel's operations in six northeastern states (excluding Assam) and Rajasthan are through Bharti Hexacom
The financial bids of the companies will be opened only after EGOM fixes the base price
The govt may force Hexacom to list if it fails to get the reserve price through a bidding process