INDIA BUSINESS WORLD - May 2005
THE MONTH THAT WAS

BK MODI GROUP GETS HC STAY ON ESSAR BID FOR SPICE TELE

The BK Modi group has succeeded in temporarily thwarting an attempt by the Essar Group to buy out foreign partners' holdings in Spice Telecom. The Delhi High Court has granted a stay on foreign partners selling their holdings in the BK Modi group-controlled telecom venture to Essar.

Essar group had made an offer to all the foreign partners of Spice - Distacom, AIG, and Darby - for acquiring their shareholding in the company. The BK Modi group had termed the Essar move as a hostile bid. The foreign shareholders control over 75% equity in Spice, a cellular service provider in Punjab and Karnataka, with a subscriber base of about 1.5m.

M Corp Global, a BK Modi group company, approached the Delhi High Court seeking a stay against the foreign partners selling their equity. M Corp Global argued that it would be a violation of the shareholders agreement (SHA). The court has now stayed the foreign partners from selling their equity till further order. The next hearing is on May 24.

The exact equity structure of Spice is not clear as the BK Modi group and the foreign investors own their stake through holding companies. The foreign investors together own up to 77% equity (through holding company route) in the company. The BK Modi Group holds about 23% equity in Spice - 13% directly and 10% through M Corp Global. Currently, cellular companies are being valued at about $400 per subscriber. Therefore, Spice should be valued at about $600m, on a subscriber base of 1.5m as reported by COAI.

However, in both Punjab and Karnataka, its subscriber base has dropped in the last three months. For instance, in Punjab, its subscriber base has dropped from 11,58,767 in December '04, to 11,27,479 in March this year.

In Karnataka, its subscriber base has dropped from 3,38,951 in December '04, to 3,11,345 in March. This may have a negative impact on the valuation of the company.

Essar has a joint venture with Hutch, called Hutch Essar, for providing cellular services. It has an equity of about 33% in Hutch Essar. It is the third largest cellular service provider in the country with a subscriber base of 77,97,720, according to COAI.

It is operating services in 13 circles - Mumbai, Delhi, Kolkata, Chennai, Gujarat, Andhra Pradesh, Karnataka, Punjab, Haryana, UP (East), Rajasthan, UP (West) and West Bengal. Meanwhile, the Essar group has independently applied to the Department of Telecommunications (DoT) for providing cellular services in seven circles - Madhya Pradesh, Orissa, Bihar, Assam, Himachal Pradesh and Jammu and Kashmir.