FIs queue up for stake in Hughes Tele.com

The first public issue in the Indian telecom sector seems to have evinced considerable interest from domestic financial institutions and private equity investors. With over 60 per cent of the book already built, Hughes Tele.com has received responses from over 50 institutional investors - global and domestic - and mutual fund bodies.

Deepak V Dutt, chief financial officer, Hughes Tele.com, told NetScribes, "The issue is progressing satisfactorily. Almost all financial institutions (FIs) from whom we expected interest have responded favourably to the project. Infrastructure companies, in particular, have shown a lot of interest."

Post-issue, domestic institutions like IDBI, ICICI, LIC and UTI could between them hold 20 per cent equity in the company. Others in the race include infrastructure companies like L&T, private equity funds and other mutual funds.

Confirming the inclination shown by the FIs, Dutt said that the institutional interest started building up after Hughes Tele.com, along with its merchant bankers, gave detailed individual presentations to FIs. "The final list of institutional investors expected to pick up equity will be known only after book-building closes," he said, adding that the exact amount of equity will also be decided only after the issue closes.

At present, Ispat Industries holds 51 per cent in Hughes Tele.com, while Hughes Electronics holds 26.65 per cent, AllTel Corporation 13.35 per cent and Kellerton Venture Corporation nine per cent. Following the IPO, the company will have divested 45 per cent of its equity. Post-IPO, FIs, MFs and other corporate bodies will hold about 25 per cent in the company, while the public will hold 10 per cent. The balance five per cent has been allocated for employee stock options.

The book-building route for the IPO opened on August 29, a day after the company announced a base floor price of Rs 12 for the issue. With just a day left for closing of the book-building route on September 5, Dutt expects more institutional investors to subscribe.

With the bid price hovering around Rs 13-15, analysts expect the IPO price also to be in the same region. Considering the global average of an enterprise value of 20 times EBITDA for 2003 estimated earnings and 11 times 2004 estimated earnings for companies providing basic telecom services, analysts say the per share value for Hughes Tele.com on the basis of 2004 earnings would be about Rs 15. "Therefore, a price band of Rs 13-15 for the IPO seems probable," Dutt said.

Meanwhile, a recent decision by the Telecom Regulatory Authority of India (TRAI) to grant a four-year tax holiday on revenue share for operators and scale down revenue sharing to 12 per cent from 15 per cent is expected to have a positive impact on Hughes Tele.com. For the year ending March 31, 2000, the company had accounted for tax and a 15 per cent revenue share in its projections of Rs 2.21 billion net loss. "If the TRAI announcement is implemented, it will help our bottomline for this fiscal," Dutt said.

Hughes Tele.com, the first private basic telecom service provider in the country, is raising Rs 7.49 billion from the public to part-finance a Rs 34.85-billion telecom project, which includes installing a state-of-the-art fibre optic network to support high-bandwidth applications for its corporate customers in Bombay and Poona.

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