Providence values Indian telco at $3.2 billion

The private equity firm pays $640 million to buy 20% of Aditya Birla Telecom, an Idea Cellular subsidiary.
Aditya Birla Telecom (ABT) has sold a 20% stake in the company to private equity firm Providence Equity Partners for $640 million.

The deal values ABT, an Indian wireless communications company and a wholly owned subsidiary of Idea Cellular, on an equity value basis at $3.2 billion. ABT owns the telecom license for the Bihar service area, which comprises the Indian states of Bihar and Jharkand and has the second highest population among all of India's service areas. ABT is in an advanced stage of readiness to roll out mobile services under the Idea brand in the next few months.

ABT will also own a 16% stake in Indus Towers û a joint venture formed by Indian mobile phone companies Vodafone Essar, Bharti Airtel and Idea Cellular at the end of 2007 to provide infrastructure services to mobile operators in 16 telecom service areas. Idea Cellular will transfer its ownership in Indus Towers to ABT.

The funds being raised by the sale to Providence will be used to fund the network rollout and ongoing operations of ABT.

ôWe are pleased with our successful partnership with Idea and look forward to extending that relationship to this important investment in the future of IndiaÆs mobile communications sector,ö says Biswajit Subramanian, managing director of Providence in India.

In October 2006, Providence led a consortium of investors who paid $550 million for a 25% stake in Idea Cellular. Providence was the single largest investor paying around $400 million for a 15% stake. The investment was the first by Providence in Asia and the firm followed the deal by transferring Biswajit Subramanian, a managing director of Providence Equity in London who joined the firm in 2000, to set up and head a new office in Delhi in January 2007

Idea Cellular is a mobile operator in India with licenses to operate in all of India's 22 service areas. It has commercial operations in 11 of these areas and a customer base of over 25 million.

Idea made an initial public offering in February 2007 that raised Rs24.5 billion ($574 million) and priced at the top end of the indicative price range of Rs65 to Rs75 per share. The total book was almost 50 times covered. Demand from institutional investors was particularly strong and the IPO garnered the largest-ever institutional subscription for an Indian IPO in dollar terms.

The Idea IPO was well-timed. It followed just 10 days after VodafoneÆs winning $18.8 billion bid for Hutchison Essar. The price the British telecom major agreed to pay for one of IndiaÆs leading mobile phone companies signalled to investors that strategic buyers shared the vision that IndiaÆs cell phone market still had significant potential for further growth. It also came at a time when the Bombay Stock Exchange index, the Sensex, was scaling new highs on a weekly basis.

The Providence investment is subject to regulatory approvals and is expected to close by August this year.

DSP Merrill Lynch advised Idea on the deal. Idea's shares closed at Rs107 a share on the Mumbai bourse on Friday, marginally down in tandem with the broader market sentiment.
¬ Haymarket Media Limited. All rights reserved.
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