Voda­fone's IPO hinges on $8bn ques­tion

The Pak Banker - - Front Page -

MUM­BAI

Voda­fone In­dia Ltd. (VOD) said it's "im­pos­si­ble" to pro­ceed with a pro­posed ini­tial share sale un­til the gov­ern­ment clar­i­fies the price to ex­tend li­censes that may amount to as much as $8 bil­lion.

The fees that In­dia's sec­ond­largest mo­bile phone op­er­a­tor may have to pay could vary by 3 bil­lion pounds ($4.8 bil­lion) de­pend­ing on how the gov­ern­ment prices the per­mits, skew­ing the po­ten­tial mar­ket value of the com­pany, ac­cord­ing to Chief Ex­ec­u­tive Of­fi­cer Marten Pieters. The li­censes are due for re­newal from Novem­ber 2014.

"It's im­pos­si­ble to float the com­pany if you have that kind of swing in your val­u­a­tion," Pieters, 59, said in an in­ter­view at Bloomberg's Mum­bai of­fice. "We'd get a dis­count for all this un­cer­tainty. Why as an owner would you want to sell it with a big dis­count?"

The gov­ern­ment's drive to boost air­wave prices amid cor­rup­tion alle- gations in award­ing spec­trum to some op­er­a­tors in 2008 may de­ter IPO in­vestors, ac­cord­ing to Naveen Kulka­rni, an an­a­lyst at MF Global Sify Se­cu­ri­ties In­dia Pvt. Mo­bile­phone com­pa­nies in­clud­ing Voda­fone, which has more users in In­dia than the pop­u­la­tion of Ja­pan, and Bharti Air­tel Ltd. (BHARTI) are strug­gling to re­vive growth in a mar­ket where 13 com­peti­tors have driven call rates to a penny a minute.

"We're still in a sit­u­a­tion where reg­u­la­tory un­cer­tainty is the or­der of the day," said Lawrence Su­gar­man, an an­a­lyst at Liberum Cap­i­tal Ltd. in Lon­don. "When you have that sit­u­a­tion, and also such high re­serve prices on the spec­trum, the com­pa­nies are go­ing to be quite re­luc­tant to in­vest."

In­dia's cab­i­net de­cided Aug. 4 that op­er­a­tors will have to pay a min­i­mum of 140 bil­lion ru­pees ($2.5 bil­lion) to buy wire­less chan­nels in the 1,800 mega­hertz band for the global sys­tem for mo­bile com­mu­ni­ca­tions, or GSM, net­works. That price is only 16 per­cent lower than the win­ning rate of high-speed third-gen­er­a­tion air­waves in a 2010 auc­tion, Mum­baibased Gold­man Sachs Group Inc. an­a­lyst Sachin Sal­gaonkar wrote in a note to clients.

Bharti Air­tel rose 2.5 per­cent to 308.85 ru­pees at 9:38 a.m. in Mum­bai. The shares have dropped 22 per­cent in the past year mak­ing it the third-worst per­form­ing stock in the 73- com­pany MSCI In­dia In­dex (MXIN), which ad­vanced 16 per­cent in the pe­riod. Re­liance Com­mu­ni­ca­tions Ltd. (RCOM), con­trolled by bil­lion­aire Anil Am­bani, has lost 15 per­cent.

Voda­fone's par­ent Voda­fone Group Plc, which ac­quired Hutchi­son Wham­poa Ltd. (13)'s busi­ness in the world's sec­ond-largest mo­bile-phone mar­ket in 2007 for $10.7 bil­lion, is also wait­ing to re­solve a $2.2 bil­lion dis­pute with In­dian tax au­thor­i­ties over the ac­qui­si­tion be­fore sell­ing shares, Chief Ex­ec­u­tive Of­fi­cer Vit­to­rio Co­lao said last year.

Pieters, who wants to sell shares "as soon as pos­si­ble" doesn't need the IPO to fi­nance the re­newal of per­mits, which will be funded by Voda­fone's share­hold­ers, he said. The unit, based in Mum­bai, has in­vested 510 bil­lion ru­pees in spec­trum and net­works in the na­tion in the last five years, he said. The com­pany has a net debt of 300 bil­lion ru­pees, Pieters said.

An IPO "would give them a bet­ter re­la­tion­ship with the reg­u­la­tors and au­thor­i­ties if there was a tie-in to the In­dian pop­u­la­tion," Liberum's Su­gar­man said. "It's good from a mar­ket­ing per­spec­tive as well."

Voda­fone has per­mits for 900 mega­hertz air­waves in Mum­bai and New Delhi that come up for re­newal. The com­pany has an op­tion to ex­tend the li­censes by 10 years.

Bharti Air­tel, In­dia's big­gest mo­bile-phone op­er­a­tor, will also need to re­new its li­censes be­tween Novem­ber 2014 and 2024.

The gov­ern­ment, which has said it plans to price re­newal per­mits at rates de­ter­mined at auc­tions, failed to at­tract bid­ders for four ar­eas in­clud­ing Mum­bai and Delhi at last week's Supreme Court-or­dered sale of sec­ond-gen­er­a­tion air­waves. In­dia will at­tempt to of­fer the spec­trum to com­pa­nies again be­fore March 31, Telecom­mu­ni­ca­tions Min­is­ter Kapil Sibal said on Nov. 16.

The Supreme Court ear­lier this year said spec­trum must be auc­tioned rather than sold and can­celed 122 li­censes, say­ing their orig­i­nal al­lo­ca­tion had been cor­rupted by "money power" and some buy­ers' "abil­ity to ma­nip­u­late the sys­tem."

In­dia will ask the tele­com reg­u­la­tor to re­vise the price for the fre­quen­cies un­sold in last week's auc­tion, a gov­ern­ment of­fi­cial told re­porters in New Delhi, ask­ing not to be iden­ti­fied, cit­ing rules.

"Since pric­ing at the 2G auc­tion was meant to act as a bench­mark for de­cid­ing the pric­ing of all other spec­trum, any down­ward re­vi­sion will have a pos­i­tive cas­cad­ing ef­fect" on air­wave rates, Sushil Sharma and Pranav Ksha­triya, an­a­lysts at Brics Se­cu­ri­ties Ltd., said in a note to clients on Nov. 15.

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