Orascom close to selling 5% in Hutchison Telecom

MUMBAI/NEW DELHI: Orascom is moving to sell a portion of its stake in Hutchison Telecommunications (HTIL) as falling market share in key countries and the controversy stirred up in India over its entry proved too much for the Egyptian phone company to bear.

“In light of current relative market valuations, Orascom Telecom continues to review all financial options, including partial stake sale, for optimising value from its stake subject to retaining its existing corporate governance and other rights under the shareholders’ agreement with Hutchison Whampoa,” the company said in its latest communication to the Cairo Stock Exchange. Sources said it is considering selling up to 5% stake in HTIL.

The move is likely to be significant as the Essar group, joint venture partners of Hutchsion Whampoa in India, have been intensely lobbying with government officials against Orascom’s entry into India.

The group has cited security concerns pointing to Orascom’s operations in Pakistan and Bangladesh. The December ’05 purchase of 19.13% in HTIL is also widely believed to be the primary reason behind the rift between Hutch and the Essar group over BPL.

As a result, Orascom’s indirect stake in Hutchison Essar, the joint venture between Essar group and Hong Kong’s HTIL, could fall significantly below the current 10%. Senior Essar group officials refused to provide any comments on the
latest developments.

According to sources close to the developments, Orascom is resorting to stake sale as its attempts to increase its holding in HTIL by 3.7% to 23% has not met with success.

HTIL has clearly stated that it will not sell any further share to Orascom. However, this development does not address the primary concern of Essar — HTIL’s joint venture in India — which has been campaigning against Orascom’s board representation in Hutchison Essar.

This right to board representation (on HTIL and its operating subsidiaries in India, Indonesia and Vietnam) remains with Orascom as long as it maintains a minimum ownership of 12% in HTIL.

However, if Orascom reduces its holding in HTIL to 12%, its indirect stake in the Indian joint venture will come down to a mere 6.21%.

“Orascom does not see any gain in holding on to HTIL’s shares now that it has no chance of increasing stake. It can have similar rights as it has now even after diluting stake,” sources close to the developments told ET.

Also, the Egyptian major has been steadily losing market share in five of the seven geographies where it offers services. In Algeria, Pakistan, Egypt, Iraq and Zimbabwe, Orascom’s market share has seen a decline, while the market share has increased marginally in Tunisia and Bangladesh.

“HTIL’s total foreign holding in the joint venture is 52% and this includes the 10% indirect stake that Orascom holds. The only possibility in this scenario is that if HTIL were to buy back the stake which it sold to Orascom, this would increase its direct holding in the Indian joint venture,” according to one of the sources.