Providence Equity pours $640 million into ABTL

Written by Corporate Bureau | Mumbai, May 22 | Updated: May 24 2008, 04:58am hrs
Private equity firm Providence Equity Partners is investing $640 million in Aditya Birla Telecom (ABTL), a wholly-owned subsidiary of Idea Cellular Ltd, by acquiring a 20% stake. The funds will be used for network rollout and ongoing operations of ABTL in the Bihar circle. The deal, which is subject to regulatory approvals, is expected to close by August 2008. Idea Cellular operates in 11 circles in India with 24 million customers. Shares of Idea Cellular declined 3.94% on the BSE on Thursday to close at Rs 107.35.

In a statement to the BSE, Idea said, "The board of directors of Idea Cellular approved on Thursday the proposed issuance by ABTL of the compulsorily convertible preference shares for an aggregate sum of $640 million, to be converted into 20% of equity share capital of ABTL post dilution, to an affiliate of Providence Equity Partners." ABTL owns the telecom UAS licenses for the Bihar service area, which covers the states of Bihar and Jharkhand. The area has the second highest population among all service areas of India, but with the lowest mobile penetration.

ABTL will hold a 16% stake in Indus Towers, the joint venture company formed by Vodafone Essar, Bharti Airtel and Idea Cellular to provide passive infrastructure services to various mobile operators in 16 telecom service areas.

Sanjeev Aga, managing director, Idea, said, This commitment will bolster our position as a leading telecom player in India. We share a relationship of trust with Providence which has facilitated putting through a large transaction in next to no time. ABTL will be listed in the distant future. Nowadays, the Indian telecom industry is attractive as far as PE investments are concerned. Last year, Singapore government's investment arm Temasek Holdings had picked up 4.99% stake in Bharti Airtel for over $2 billion (Rs. 8,198 crore). According to reports, Tata Teleservices also plans to raise $1 billion by selling 15-30% of its stake to private equity players. The telecom tower arms of the companies remain the blue eyed boys of PE players. In February this year, PE firm Kohlberg Kravis Roberts & Co (KKR) had invested $250 million in Bharti Infratel, a wholly-owned tower subsidiary of Bharti Airtel.

In December 2007, Bharti Infratel had divested close to 10% stake for $1 billion to a clutch of investors including Temasek Holdings, Investment Corporation of Dubai, Goldman Sachs, Macquarie, AIF Capital, Citigroup and India Equity Partners. Earlier, Reliance Infratel, infrastructure division, Reliance Communications, had sold 5% stake for Rs 1,400 crore to a host of investors.