The Hindu Business Line : Providence Equity buys 20% stake in Idea Cellular arm

Mumbai, May 22 US-based Providence Equity Partners has picked up 20 per cent stake in Aditya Birla Telecom (ABTL), a subsidiary of Idea Cellular, for $640 million (Rs 2,748 crore).

ABTL owns a telecom licence for the Bihar service area and it is all set to launch GSM services there in the next three-four months, said Mr Sanjeev Aga, Managing Director, Idea Cellular.

ABTL will issue compulsorily convertible preference shares aggregating $640 million to an affiliate of Providence Equity Partners. On conversion, Providence will have 20 per cent stake in ABTL, Idea said in a communication to the stock exchanges.

This is said to be one of the largest private equity investments in the telecom sector. A major portion of the fund raised from the stake sale will be utilised for launching telecom services in Bihar, Mr Aga told presspersons here on Thursday. The stake sale to the Rhode Island-based Providence values ABTL at 13,744 crore, according to an analyst.

The deal, which is subject to FIPB approval, is expected to be completed by August 2008. The Bihar circle, which covers the States of Bihar and Jharkand, has the lowest mobile penetration among all service areas in the country, according to statement from Idea.

‘Too early to predict’

Analysts concur that it is too early to predict what impact this move would have on the Aditya Birla group company. “Prima facie, the capital infusion is good news for the company as it prepares to unveil services in Bihar. However, Idea will face stiff competition from six other telecom operators there and so the Birla company will take time to establish a presence in that market,” said Mr Priyank Chandra, Research Analyst, Dolat Capital Market Ltd.

Reliance Telecom, BSNL, Bharti Airtel and Dishnet Wireless (Aircel) are the other GSM players in Bihar. This is not the first time Providence is investing into Idea Cellular. In 2006, Providence had pumped around $400 million in Idea as part of the Pune-based company’s pre-IPO placement. Idea Cellular intends to publicly list shares of ABTL over a ‘medium term’ horizon, said Mr Aga. Separately, ABTL will hold a 16 per cent stake in Indus Towers, a joint venture company formed by Vodafone Essar Ltd, Bharti Airtel Ltd and Idea Cellular Ltd to provide passive infrastructure services to mobile operators in 16 telecom service areas.