Kerry Packer picks up 10% stake in HFCL

In a recently concluded deal, Himachal Futuristic Communications Limited (HFCL) is to issue over 7 m shares (10% of equity) to Kerry Packer owned Consolidated Press Holdings (CPH) at a price of Rs 1,450 per share. The deal will lead to an inflow of Rs 10 bn into the company. The deal has been done at a discount to the price of the stock in the domestic markets. The HFCL stock ended trading at Rs 2,415 on the Bombay Stock Exchange (BSE), up a sharp 8% over the previous closing.

The deal with CPH also involves the setting up of two joint ventures. The first of these would involve providing software services and products while the second would focus on B2B e-commerce infrastructure and solutions.

Although the extent of CPH's participation in HFCL has not yet been made clear it is apparent that the two companies may be looking at exploiting synergies to hop onto the 'convergence' bandwagon.

HFCL has a presence in the basic telephony services sector, albeit the presence is limited. In recent months the company has entered into several joint ventures, one of which, Smart Infosolutions, is gearing up for providing broadband services in the domestic markets. Another venture is looking at providing multimedia services. And not to forget, the company's core business of telecom hardware has been performing very well, as demand from the government as well as the private sector has picked up dramatically.

The alliance will benefit HFCL in a number of ways. First, there will be an inflow of funds as fresh equity is being issued. This will enable the company to reduce its debt burden, which currently stands at over Rs 3.5 bn. These funds can then be used to fund the company's new initiatives, most of which involve the technology sector.

Second, as part of the deal the company is setting up two joint ventures. These again will give a thrust to the company's shift from being a hardware provider to a solutions provider for telecom and Internet (or software) related projects.

There could be additional benefits from this association. Kerry Packer has yet to establish his media presence in India. He has content but no distribution channel. This is where HFCL could play a key role. HFCL is already working on providing broadband and multimedia services. Thus, there is ample scope for the two to extend their partnership in view of their complementary competencies.