The enterprise valuation of Hutchison Essar today stands at about $2 billion (approximately Rs 9,000 crore).
Sources familiar with the development said that the Aircel acquisition at an enterprise value of Rs 1600 crore Rs 1200 crore of equity and debt to the extent of Rs 400 crore would facilitate the process of commanding a higher overall valuation for the proposed merged entity.
According to them, the enterprise value of the merged entity will increase by at least the enterprise value of Aircel, ie, Rs 1600 crore. This comes at a time when the Hutchison Essar entity is scheduled to hit the market with an initial public offering (IPO) later this year.
The first stage for the proposed IPO is already in place with the filing of the application with the Foreign Investment Promotion Board (FIPB). This application was filed on June 14 which will consolidate all the Hutchison entities in India under one entity. This will eventually lead to the transfer of shares of the existing Hutch companies to Hutchison Max Telecom Limited (HMTL).
The existing Hutch affiliates are Hutchison Essar Telecom, Hutchison Telecom East, Hutchison Essar South, Fascel and Aircel Digilink. The shares of these companies will be transferred to HMTL. These companies operate Hutchison Essars current cellular operations across India.
Once the proposed merger is completed, Hutchison will hold 49 per cent which is the maximum holding that a foreign player can hold in an Indian telecom entity. The other shareholders will be Essar, Kotak, the Hindujas and the Analjit Singh-promoted Max India.
The Hindujas had earlier released a statement where it was said that they would hold 5.11 per cent in the merged entity. At the current enterprise valuation of $2 billion, the Hindujas stake translates to around Rs 450 crore.
As a result of increased valuation, added sources, the Hindujas will also stand to gain.
At this stage, Hutchison Essar provides cellular services in the four metros - Delhi, Mumbai, Kolkata and Chennai apart from Gujarat, Andhra Pradesh, Karnataka, Haryana, Uttar Pradesh (East) and Rajasthan.
With the acquisition of Aircel, Hutchison Essar becomes the largest cellular service provider in Chennai apart from a significant presence in Tamil Nadu. In Tamil Nadu also, Aircel is the largest operator with 7.8 lakh subscribers where the circle overall has over a million subscribers.
Sources said the southern market will now open up for Hutch where it is currently the fourth largest operator. As a result of the buyout of Aircel, it is expected that Hutch will able to control a large component of the mobile traffic in the south.