India telecom firms ready to hit the market with IPOs
The Indian telecom industry is currently buzzing with initial public offer (IPO) plans. During the last one year, about a dozen telecom companies have expressed their intentions to hold IPOs aimed at raising funds for expansion.But, as per analysts, the present telecom environment is not suited for raising funds from the public. According to Jagannadham Thunuguntla, equity head, SMS Capitals, “Telecom environment is quite dicey at present and the telecom firms which are going for an IPO will not attract too many investors.”He said that between 2000 and 2010, the telecom industry in India had witnessed enormous growth, but that it has now reached a point where margins have started declining.
Thunuguntla added, “Most telecom companies looking at an IPO have been functional from the last four to five years and have now reached a saturation point of investment. Their funds have started depleting and it’s high time that they should look at raising money from other sources.”
“Companies such as One97, which have been doing very good financially and have been funded by private equity (PE) firms till now, are now aiming for an IPO as their PE partners have decided to make an exit after four to five years.”
Telecom Yatra takes a look at the steps these companies are taking towards achieving this goal.
Telecom operators:BSNL: The communications ministry is yet to make a decision on selling 30 per cent of the state owned telco as was suggested by the Sam Pitroda panel.
The ministry has referred the issue to an internal department of the telecom committee, which has been asked to study the Pitroda panel report and submit its observations by August 10.
Earlier this year, the panel had recommended the sale of a part of BSNL through an IPO, and a reduction of a third of its staff in an attempt to revive the company. It also recommended that funds be raised by selling infrastructure such as signal towers and real estate that it owns.
Vodafone Essar: The venture between Britain's Vodafone and India's Essar Group is exploring the option of an IPO and discussions are in the initial stages. Earlier in July, Essar was said to be in talks with banks to explore options that included an IPO, for offloading 33 per cent stake. The company is yet to finalise a plan.
Essar's option to divest its stake in the venture expires in May 2011 and it has to make a decision within this time.
MTS: The Russian telco's Indian arm is on the verge of an IPO. The board of Sistema Shyam TeleServices (SSTL), which operates under the MTS India banner, has in principle approved plans for the company to be listed. It has already initiated the process and is currently working out details such as the amount of stake to be divested.
The company hopes to hold the IPO around the end of this year. However, SSTL says it is in no hurry to get listed as it has adequate resources to fund its expansion in the immediate future.
Tata Teleservices Limited: Tata Group's two mobile telephony businesses Tata Teleservices Limited (TTSL) and Tata Teleservices Maharashtra Limited (TTML) are in the final stages of a merger. As per analysts, the merger could have been a reverse one such that the parent company could have merged into its subsidiary, but TTSL being the bigger company and one that is not listed might have caused complications.
A favourable option for the company would be to delist TTML and then merge it with the parent company, and this is what the company will do. It will delist TTML and then go for a fresh public offer for the new entity in a few days. Details on the new entity's IPO plans are not available as of now.
Value added services companies:Spice Digital: Spice Group's VAS venture has been intending to launch an IPO and is expected to file a draft red herring prospectus soon. The company is confident that the process will be completed by the end of the year. Through the IPO, the company plans to raise funds for M&As and expand services to more countries than the 14 it currently operates in. The company is hopeful that the IPO will also give a push to its plans for 3G service rollout.
This is Spice Digital's second attempt at an IPO. The company had earlier failed at attempts of an IPO in June 2008. Spice Digital, at that time Cellebrum Technologies, had drafted an IPO proposal in June 2008, which was rejected by the Securities and Exchange Board of India (SEBI) on grounds that the bankrupt firm Lehman Brothers could not offload its stake in the company while being the lead manager of the IPO. Enam Securities was the other lead manager.
One97 Communications: The mobile VAS company has filed a draft red herring prospectus with SEBI for an IPO. It hopes to raise about Rs 120 crore in order to expand in India and abroad. The company has made it clear that it will not raise pre IPO funds.
The Noida-based company earlier raised private equity funding from SAIF Partners, Intel Capital and Silicon Valley Bank in two rounds since 2007. The overall funding stands between $24 million and $28 million.
ValueFirst: The Gurgaon-based enterprise mobile messaging company is in the process of acquiring Indian companies as a build up to its IPO plans in 2012. It is also targeting revenue of over Rs 100 crore by the end of this financial year.
ValueFirst will start preparing for the IPO around September next year and currently hopes to build traction and make the brand visible in the market.
During the last three to four months, ValueFirst has acquired two companies Packet Shaper Technologies and Tagg.in, and has made a strategic investment in Indyarocks, an online and mobile social networking company.
Planet41 Mobi-Venture: The provider of mobile VAS has filed initial papers with SEBI for an IPO, to raise up to Rs 500 million. The company expects to carry out the IPO by September.
Planet41 intends to use the proceeds to set up a research and development centre in Mumbai for 3G telecom services, and to acquire VAS companies.
Infrastructure companies:Quippo-WTTIL: The telecom tower is expected to hit capital markets by the last quarter of this financial year. The company says it is already registering cash surplus and that if it makes net profit in the next two quarters, it will launch an IPO.
Quippo-WTTIL is owned by Quippo and the infrastructure business of Tata Teleservices called Wireless Tata Telecom Infrastructure.
Reliance Infratel: The tower company promoted by Anil Ambani, received SEBIs's approval in January for holding an IPO. It had filed a draft red herring prospectus for a 10 per cent equity offer last year.
The company aims to utilise the bulk of the proceeds to repay loans worth Rs 4,000 crore to its promoter entity Reliance Communication Infrastructure, while the rest is to be used for issue expenses and general corporate purposes.
Reliance Infratel aims to raise Rs 5,000 crore from the public offer.
Handset companies:Micromax: The Indian mobile handset maker has revealed plans to offload a minor stake through an IPO. The company is looking at diluting equity either through an IPO or through private placement.
Micromax will start talks with private equity firms after the third quarter for a minor equity sale and will eventually get listed.
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